Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold, Original Money, Fiat Money

Currencies / Fiat Currency Nov 28, 2018 - 12:03 PM GMT

By: Kelsey_Williams

Currencies

The first gold coins appeared around 560 B.C.  Over time it became a practice to store larger amounts of gold in warehouses.  Paper receipts were issued certifying that the gold was on deposit.  These receipts were negotiable instruments of trade and commerce which could be signed over to others.  They were not actual currency but are a presumed forerunner to our modern checking system.

Gold is original money. It was money before paper receipts were issued. The paper receipts were not money. They were substitutes for real money. Today, all paper currencies are substitutes for real money. 


The term ‘fiat money’ comes up often and is used in financial and economic analysis, commentary. Definitions are offered, but they vary somewhat in accuracy and clarity, and tend to be incomplete.  In some cases, the explanations leave us with a vague understanding of the term and its applicability.

The specific definition that I find to be the most accurate and complete is as follows:

 fiat money is inconvertible paper money made legal tender by a government decree”

There are no less than fourseparate terms in the above definition, each with its own respective definition, which are critical to a complete, accurate, and clear understanding of fiat money.  They are:  1) inconvertible  2) paper money  3) legal tender  4) government decree. Let’s examine each one.

One definition of inconvertible is  “not able to be converted into another form of money on demand”. That is mostly accurate but it is not specific enough for our purposes. From “History Of Gold As Money“…

As late as the early twentieth century,  the U.S. dollar was fully convertible into gold at a rate of twenty ($20.67) dollars per ounce.  You could exchange paper currency of twenty dollars for one ounce of gold, usually in coin form; and vice-versa. The two were interchangeable and the either one was payable on demand.

In 1933 President Roosevelt issued an executive order “forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States”.

A better definition of inconvertible would be “not able to be exchanged (converted) into gold (i.e., real money) on demand”.

A basic definition of paper money is “money in the form of banknotes”. All paper monies are substitutes for real money/gold. They have no intrinsic value.

The definition of legal tender is “banknotes that must be accepted if offered in payment of a debt”.

And, finally, the definition of government decree is “a rule of law usually issued by a head of state…”. They are authoritarian in nature.

Now let’s look at the U.S. dollar:

There is no statement which guarantees that the dollar can be exchanged for gold (real money) on demand. Nor can it be exchanged for any other form of money. In any sense of the word, the U.S. dollar is definitely inconvertible. Don’t confuse currency exchange or purchases of gold on the open market for convertibility. There is no link of any specific quantity at any fixed price for any other form of money.

Not only is the U.S. dollar inconvertible, it is also irredeemable.  The definition of irredeemable is “not able to be saved, improved, or corrected; paper currency for which the issuing authority does not undertake to pay coin”. In this case ‘coin’ refers to real money/gold. Both definitions apply.

(Some might argue, and have, that the dollar can be saved. In a certain very technical sense, that may be the case. However, what is necessary in order for that to happen would not be allowed. It would require financial and economic pain, the likes of which would require depression-like conditions, before the welcomed stability and prosperity. Unfortunately, we may experience worse results by continually postponing any healing crisis.)

At the top of the image above, and on the dollars which we use, are the words “Federal Reserve Note”. The Federal Reserve is a bank. It is a banker’s bank. It is also a central bank. Hence, the U.S. dollar is a banknote. And it is printed on paper. As such, it meets the definition of paper money.

In the top left section, directly underneath “THE UNITED STATES OF AMERICA” is the declaration: THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE. So, we have a “banknote(s) that must be accepted if offered in payment of a debt”.

Both President Roosevelt and President Nixon, in their government decrees (executive orders) suspending convertibility of the U.S. dollar, also proclaimed and declared the use of the U.S. dollar as legal tender, and the declaration is backed by force of law.

Convertibility is the key. It is unnecessary to force people to accept paper money when it is redeemable on demand for a known and specific quantity of gold.

Unfortunately, government cannot be trusted. Which is why, even with convertibility, the U.S. dollar’s link to gold was eventually severed. Here’s why.

For convertibility to work, the supply of banknotes needs to remain stable. As more paper money is issued, the ability to redeem on demand declines. Some would say that the paper money loses value. Yes, but the only real value to the paper money is its convertibility into gold.

As questions arose regarding the value of the paper money in circulation, more and more people opted for real money – gold.  There simply wasn’t enough gold to meet the redemption demands.  And to whatever extent it was available, the banks and the government didn’t want to release it. Again, from “History Of Gold As Money“…

In 1968, the United States Government again revalued gold “officially” at $40.00 to the ounce and at the same time acknowledged a “free-market” price for gold which could operate on its own, independently. However, the U.S. would not recognize the free-market price in any official dealings/transactions.

By 1971 things were getting a bit dicey.  Foreign governments wanted their gold, but the U.S. did not want to release it.  Or, they didn’t have it.  Probably some combination of both.  So, in August 1971, President Nixon suspended any further convertibility of U.S. dollars into gold by non-U.S. citizens.  All hell broke loose. Literally.

Gold is real money. And it is original money.

What we call money today is really just paper. And the U.S. dollar is the epitome of fiat money.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2018 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules