Why gold is not medium of exchange?

The currency is something that can be used as a medium of exchange and must have certain characteristics that have been known at least since the 17th century. Most advocates of commodity money choose gold as a medium of exchange because of its intrinsic properties. Gold has non-monetary uses, especially in jewelry, electronics and dentistry, so you should always maintain a minimum level of real demand. Since ancient times, gold has been reliably used as a store of value and medium of exchange.

Reviews of The Best Gold IRA Companies are available to help you make an informed decision when investing in gold. Today, in an era in which the world is moving ever closer to the total elimination of currency and its replacement by plastic cards and even cyber money, the use of gold as money seems somehow completely out of place. However, the possibility of an economic collapse has led many investors to start acquiring and storing gold, specifically in order to buy essential items in case the worst happens. Gold and silver, then, are the natural means of exchange. Every producer wants to convert their surplus into them, or promises to pay them on demand.

Every person who lends a property stipulates that they be paid for it. Consequently, all contracts are considered payable in them, whether or not they contain such a provision. However, given that its intervention is, until now, a tax on industry, one of the first improvements of modern commerce was to dispense with its use in many transactions by offsetting each other symbols of values or evidence of ownership, of which trade between nations is a surprising example. A merchant of dry goods in the United States does not accompany his order with its value in gold, but with the purchases of his neighbor who is dedicated to shipping products to that country, an invoice that is deducted against each shipment.

The foreign manufacturer collects the invoice and credits its American customer with the amount. The same applies to the purchaser in England of American products. Exchanges carried out in this way, which have the nature of types in kind, do not require the use of a quantity of gold and silver equal to their volume, which of course entails corresponding savings. If exports and imports between the two countries were exactly the same in quantity, not a single dollar in gold would be needed for trade between them.

However, while they are almost uniform over a series of years, they rarely happen to be exactly balanced for a year. The difference, whatever it may be, must be paid in gold and silver, which, in such cases, move more as a commodity than as currency. In an international gold standard system, gold, or a currency that is convertible into gold at a fixed price, is used as a means of international payments. Under this system, exchange rates between countries are fixed; if exchange rates rise or fall below the fixed currency rate by more than the cost of sending gold from one country to another, there are large inflows or outflows of gold until exchange rates return to the official level.

These “activation prices” are known as gold points. It is assumed that the origin of media of exchange in human societies emerged in ancient times as awareness of the limitations of bartering grew. The form of the medium of exchange follows that of a token, which has been further refined as money. A medium of exchange is considered to be one of the functions of money.

The stock market acts as an intermediary instrument, since it can be useful for purchasing any good or service and avoids the limitations of bartering, in which what one wants must match what the other has to offer. However, by 1928, the gold standard had practically been restored, although, due to the relative scarcity of gold, most countries adopted a gold exchange standard, in which they supplemented their central banks' gold reserves with currencies (U. It can also refer to a monetary system of free competition in which gold or bank receipts for gold act as the main medium of exchange; or to an international trade standard, in which some or all countries set their exchange rate based on the relative parity values of gold between individual currencies. In the decades leading up to World War I, international trade was conducted on the basis of what is known as the classic gold standard.

The medium of exchange makes it easy to establish and adjust the relative values of items on the market. Banks, as financial intermediaries between major savers and borrowers, and their ability to generate a medium of exchange greater than the deposit of value of a fiat currency, are the basis of banking. . If there were one that had universal appeal, by virtue of this they would necessarily become means of exchange, since each person would try to become the owner of it by exchanging everything they had and wanted to sell.

The advantage that results from eliminating both gold and silver to be used as capital for other purposes is too palpable and well understood to require a more detailed illustration. Now, universal experience shows that gold and silver are more attractive to the race than any other type of commodity or property. In 1958, a type of gold standard was re-established in which the main European countries provided for the free convertibility of their currencies into gold and dollars for international payments. However, the gold exchange rate pattern collapsed again during the Great Depression of the 1930s, and in 1937, no country continued to maintain the full gold standard.

The most important and essential function of a medium of exchange is to be widely acceptable and to have a relatively stable purchasing power (real value). The gold standard is a monetary system in which a country's currency or paper currency has a value directly linked to gold. A country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price. .