Turning Gold Into Money

Gold is one of the most dynamic elements of the modern economy

and some might find it funny that the oldest form of valuing

physical commodities is still thriving today. The first gold

coins were produced in 700 BC and since then the precious metal

has been used as the primary exchange element. The fact that

gold was scarce and highly valued made it the perfect means of

exchange, regardless of what the exchanged items were. The

history of gold turning into money spans over a period of 2600

years and the turning point in gold’s history is the year 1971.

How Did Gold Become Paper?

Throughout history, gold and silver coins went through a

process of debauching. Such coins began to be created out of

gold and other metals, thus making the values of the actual

coinage fluctuate in time. The process of turning physical gold

into money began when goldsmiths, who used to store gold for

other society members for a fee, started to issue receipts for

their storage. The receipts idea spread quickly as it was more

convenient than carrying the actual metal with them, so people

began to get accustomed to the idea of paper money. Goldsmiths

gradually turned into bankers and the currency evolutionary

process continued developing.

Why Did The Gold Window Close?

The 15th of August 1971 is the day when the “Gold window” was

closed by the American president Richard Nixon. From that

moment on, paper money could no longer be converted to gold, a

fact that took the precious metal out of currency exchanges. In

order to understand why the situation with gold in the economy

reached this point, let’s travel back in time to the moment

when bankers saw the opportunity of replacing metal with paper

money. Since they had the power of issuing the receipts for

gold, bankers thought of producing more receipts than the

amount of gold they held. But, as you would expect, this

practice also became popular and bankers soon started lending

these receipts to the early governments and to the monarchs of

the epoch.

New Acts And Regulations Concerning The Use Of Gold

England was the country where bankers created the first central

bank. The main purpose of such a bank was to lend money to

monarchs, but it also served as protection for those bankers

who issued more money than they could redeem in gold. However,

it became obvious that this practice had a negative impact on

the country’s economy. This lead to the apparition of the

“Peel’s Bank Act”, which stated that banks are not allowed to

issue more paper money than the gold they actually had in

reserves. Thus, the importance of gold as a decisive factor in

the global economy remained high all throughout modern

financial history.

What Do You Know About Modern Gold?

An interesting evolution of gold prices began in 1934, when

gold was priced at $ 20. In the period until 1971, the gold

price remained around $35. However, with the changes that

occurred in the global economy, gold prices reached $300 and

they remained above or very near this threshold. Various

factors in the geopolitical world had their influences on the

evolution of modern gold prices.

Can Gold be Controlled?

Do you ever think about gold when you are going to work or

while shopping? Even though our modern society perceives gold

more as a fashion item, nations still rely on the power of the

precious metal in order to keep their economies balanced. We

might not see gold in stores, while paying our taxes, or while

taking credits from a bank, but it is an element profoundly

involved in all these actions. It is fair to say that,

throughout human history, we were often the ones being

controlled by this precious metal, and not vice versa, as most

people believe.