Kumari Palany & Co

Is Gold a Currency?

Posted on: 08/Aug/2024 12:23:30 PM
Gold has always held a significant role in the international monetary system. The first gold coins were minted on the orders of King Croesus of Lydia, an area now part of Turkey, around 550 BC. These coins circulated as currency in many countries long before the advent of paper money. Even after paper money was introduced, currencies maintained a link to gold, with paper notes being exchangeable for gold on demand.
 
By the late 19th century, many of the world’s major currencies were fixed to gold at a set price per ounce, a system known as the ‘Gold Standard.’ This system persisted in various forms for about a hundred years. To aid further research, the World Gold Council has compiled a collection of extracts from key historical documents, spanning from 1660 to 1999. These documents, complete with citations, serve as a valuable resource for scholars, journalists, and anyone interested in gold`s monetary role.
 
 Gold as a Currency
 
Although gold does not meet all the criteria needed to be considered a currency today, it was widely used as such in most economies before the 20th century. Unlike fiat and paper money, gold is no longer issued by governments in circulating coins. However, it is still used as a medium of exchange and can be a basis for trade.
 
Before the end of the gold standard in 1971, the US Dollar the world’s major currency was fixed to the price of gold and theoretically exchangeable for it. This linkage allowed the US Dollar to be classed as a currency in its own right. Today, governments, central banks, and financial institutions hold large reserves of gold as a store of wealth and for potential future exchange. Individual investors also hold gold as a long-term safe haven, hedge investment, and a store of wealth. This gold can be exchanged at commodity prices and used as a basis for trade.
 
Another argument for considering gold as a currency is the fact that some gold coins produced today have a face value. For example, The Royal Mint in the UK produces gold coins such as the gold Britannia and gold Sovereign, which have face values of ₹10,000 and ₹100, respectively. Their actual value based on gold content is much higher, and while they are not accepted in shops or banks, they are considered legal tender. This status technically makes them a currency and grants them several useful tax benefits.
 
Conclusion
 
While gold is not strictly a currency in the modern sense, it can be used in many similar ways to fiat currencies. Some gold enthusiasts arargue that even after the abandonment of the gold standard, gold remains the only true, long-term international currency, while also being traded as a commodity. Thus, gold occupies a unique position, straddling the line between a traditional currency and a valuable commodity.