Gold Standard

Half a century ago, every US dollar in existence was valued by the price of gold. Gold dictated global economics and its end allowed for incredible economic growth based on almost unlimited money creation.

We’re in the era of fiat currency. Every dollar’s value is guaranteed by government command. There’s nothing ensuring $1 is worth any physical good. Half a century ago, every US dollar in existence was valued by the price of gold. The Gold Standard, officially absolved in 1971 by Richard Nixon, allowed for an incredible expansion of the monetary base, huge economic growth and probably enabled Bitcoin too.

A little history lesson, in the past, every dollar was worth an equivalent amount of gold. The price of gold was fixed and the dollar value was derived from this point. If gold was $1000, a dollar would be worth 1/1000th of an ounce. Why? Trusting imperfect humans with governing the supply of money was too great a risk. While this may have been true, it also stifled growth. The supply of money was dictated by the supply of gold. As economies grew, a different monetary system was needed. 

The end of the gold standard allowed for incredible economic growth based on almost unlimited money creation. In the last 50 years, US GDP is up almost 20x. Banks could now issue money at unprecedented rates. Since the start of 2020, the US money supply has increased by 35%.

Not everyone agrees with this practice mainly because of the link between the money supply and inflation. One of the selling points of so many cryptos is their fixed supply including Bitcoin. A lot of current economic chatter pegs inflation as some evil phenomenon robbing people of their purchasing power.

Hyperinflation is exactly that but moderate inflation is good and necessary. Banks target 2-3% inflation every year; it keeps the economy moving and allows wages to rise. Moreover, it works against deflation, a crippling economic state where falling prices prevent growth.

Either way, this is just a little history lesson on our current monetary system.

Want more?

You know what to do

Insights, trends and company deep dives delivered straight to your inbox.

Stake logo
Over 7,000 5-star reviews
App Store logoGoogle Play logo

Subscribe to our free newsletters

By subscribing, you agree to our Privacy Policy.

Stakeshop Pty Ltd is registered as an overseas company in New Zealand (NZBN: 9429047452152), and is registered as a Financial Service Provider under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (No. FSP774414). We hold a full licence issued by the Financial Markets Authority to provide a financial advice service under the Financial Markets Conduct Act 2013. However, the content on this website has not been prepared to take into account any of your individual objectives, financial situation or needs. To the extent you require further information about the relevant New Zealand legislation that may apply, or require specific advice, please contact your legal and/or financial adviser (as appropriate). The information on our website or our mobile application is not intended to be an inducement, offer or solicitation to anyone in any jurisdiction in which Stake is not regulated or able to market its services. At Stake, we’re focused on giving you a better investing experience but we don’t take into account your personal objectives, circumstances or financial needs. Any advice is of a general nature only. As investments carry risk, before making any investment decision, please consider if it’s right for you and seek appropriate taxation and legal advice. Please view our Terms & Conditions, Privacy Policy, Financial Advice Disclosure and Disclaimers before deciding to use or invest on Stake. By using the Stake website or service in any way, you agree to our Privacy Policy and Terms & Conditions All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Past performance of any product described on this website is not a reliable indication of future performance. Stake is a registered trademark under class 36 (New Zealand).

Copyright © 2023 Stake. All rights reserved.