Infoblog: Comprehensive assessment of gold and its comeback as money in 2024 given the backdrop of the failure of fiat currency.
In 2024, the role of gold in the global financial landscape is gaining renewed attention. Let’s delve into this topic, considering the context of fiat currency challenges and the potential resurgence of gold as a form of money.
The Fiat Currency Dilemma:
Fiat currencies are government-issued money that lacks intrinsic value. Their worth is based on trust and legal acceptance.
Since the Bretton Woods agreement was suspended in 1971, fiat currencies have operated without a direct link to gold.
However, evidence suggests that detached from gold, fiat currencies face significant limitations and risks1.
Gold’s Resurgence:
Relative Price Volatility: When comparing commodities and energy priced in dollars and gold, gold consistently emerges as the objective value in commodity transactions.
Legal Money vs. Credit: Gold is legal money, while fiat currencies represent credit with counterparty risk.
Dollar Outlook: The dollar, as the leading fiat currency, faces challenges. Commercial banks’ high leverage, credit withholding, and impending recession contribute to its uncertain future.
Inflationary Pressures: Stimulus measures and corporate rescues will lead to inflation, undermining the dollar’s value.
Debt Trap: The US Government grapples with a distressing debt situation, and foreign buyers of US debt are becoming net sellers.
International Credibility: 2024 may witness the dollar losing international credibility, causing its value (measured in real, legal money—gold) to decline1.
Egyptians Turning to Gold:
In Egypt, as the pound (the fiat currency) collapses, citizens are flocking to gold as a store of value23.
The government even plans to install ATMs dispensing gold bars instead of cash3.
The Gold Standard vs. Fiat Money:
The gold standard ties a currency’s value directly to gold, making it convertible into gold.
Fiat money lacks such backing and allows central banks to print unlimited amounts.
Some economists advocate a return to the gold standard4.
Historical Perspective:
During World War II, the ability to print fiat currency without gold constraints fueled inflation and endless war5.
In summary, gold’s intrinsic value, stability, and historical role as money position it favorably in a world grappling with fiat currency challenges. As we navigate economic uncertainties, gold’s comeback as a trusted form of wealth preservation remains a compelling narrative.
Further reading
