User 205735

'Gold as Money' Means a Potentially Massive Rise in Valuation

A government's adherence to a gold standard does not require that it hold enough gold to redeem all outstanding paper money. The purpose of a gold standard is a signaling mechanism: there are too many dollars (gold price goes up) or there are too few dollars (gold price goes down). A government can do what it wishes with that signal. If the government mops up or provides fresh paper money in accordance with that signal, very little gold needs to be held in the vaoults. Gold is a unit of account not a medium of exchange.