How is gold different to fiat currency? What’s the connection? And will we ever return to a gold standard or gold as the world reserve currency?
Gold has maintained its purchasing power through booms and busts, through war and famine, and through mankind's constant ability to debauch and devalue Fiat alternatives. While the dollar has been the World's Reserve currency for 40 years, that hasn't always been the case. The British pound, the Spanish Peseta, and even the Portuguese Escudo at one point in history were all as mighty in their time as the dollar is today. Throughout history, when civilizations needed to finance expansion, they were constrained by their gold reserves. The Romans physically clipped their coins, reducing the amount of gold and silver, and thereby reducing the wages paid to their armies until such point that the soldiers refused to fight. For the majority of the last 200 years, the world has been on a gold standard of some sort. But we live in the first period in recorded history of a purely Fiat currency regime. That regime began when Richard Nixon broke the dollar's link to gold in 1971. Today, the absence of any link to gold has allowed governments to increase debt to completely unsustainable levels. When society can no longer service this ever-expanding debt mountain, a return to a gold standard of some sort is almost inevitable.
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