Hello running_bare: You say “First, Gold has never been the actual medium of exchange (one of the definitions of money).” Perhaps my definition of gold as a medium of exchange should be rephrased to say money based on gold. This is a fact of history as you pointed out. For example the Byzantine gold solidus, the Spanish gold doubloon, the British gold sovereign, the US Gold eagle, the Italian gold scodo and gold florin etc. All of these coins contained gold which gave them their value and were used as a medium of exchange. I hope that clears up the confusion. Leonardo da Vinci was paid according to his journals in a ten-month period a total of 240 scudi and 200 florins from the king. Based on the amount of gold in these coins which at today's price that amounts to ~$ $72,153.24. But since there was no income tax his gross salary would be just over $ 100,000. http://us7.campaign-archive2.com/?u=6043f7810362a545dc3f006f0&id=81fa1178cc&e=36a2c907f9 By "imitation coin struck in India" you mean I assume a counterfeit coin. If counterfeit money was passed off as real money it has no relevance to the discussion on why money based on gold is better than a fiat currency. Counterfeit money is still a problem. If you get stuck with some counterfeit money and try and deposit it in the bank then guess what, you find out that you just got robbed for that amount of money. Not much of a confidence builder is it. Gold coins are a lot harder to counterfeit. "CONFIDENCE is what ultimately determines value" this is true if your talking about money. But the Federal Reserve creating money out of thin air debases the currency and undermines this confidence. They can’t do that with gold. The fact that central banks own so much gold and continue to add to their reserves shows a decreasing confidence in the US dollar. Fiat currencies don't hold their value over time. Their decline in value corresponds with the decline in that country's economy. Please explain in your own words how the Federal Reserve creating trillions of dollars out of thin air improves your confidence that the US economy will remain as you say the "DOMINANT ECONOMY".
Before turning over to the dark side, Greenspan had some candid thoughts on this. Google "Gold and Economic Freedom".
Hello maler: Thanks for your post. It is certainly the best post on this thread so far. Who would have thought that Alan Greenspan who wrote this in 1966 had so many nice things to say about gold and so many bad things to say about creating money out of thin air. Gold and Economic Freedom by Alan Greenspan http://www.usagold.com/gildedopinion/greenspan.html Greenspan says about creating money out of thin air: “But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale… Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.” And for those who still believe that gold has never been the actual medium of exchange Greenspan says: “Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one.” Another interesting comment on gold from some one else, the economist Gary North gives probably the best reason why central bankers use gold so much and also answers the op’s original question in the thread title: “Then why do central bankers use gold to settle their own interbank accounts? Because central bankers don’t trust each other — the same reason why the public prior to 1914 used gold coins and IOU’s to gold coins. The central bankers don’t want to get paid off in depreciating money. At the same time, they do want to retain the option of paying off the public in depreciating money.” The Re-Monetization of Gold By Gary North, August 13, 2003 http://www.lewrockwell.com/2003/08/gary-north/gold-is-not-money-2/ See the below for some great free market thoughts on money and banking. Mises on Money by Gary North http://archive.lewrockwell.com/north/mom2.html
He was the chairman of the Federal Reserve at the period of time and look like he wrote that purely because of political policy reason.
I think he wrote that just to prevent anyone to think what the US gov was trying to do: In October 1976, the government officially changed the definition of the dollar; references to gold were removed from statutes. It is just like what they are doing now, tell everyone there is good chance that US gov will increase interest rate next year..next year..next year...for like 6 years something already but they still don't increase interest rate. They always want people to believe exactly the opposite way of what they want to do to achieve their goal.
Hello Gloria: And what do you now believe is the answer to your thread question after all of the replies posted on your thread so far ?