““Bad money drives out good.””
That’s Gresham’s Law, but it has nothing to do with the gold standard. It describes what happens when a government compels two coinage issues of differing quality to be treated as if they are equal. The undervalued coins will be hoarded and the overvalued coins will continue to circulate.
“if we return to a gold standard without enough gold to back up most of that currency, it will get “exchanged” out of existence fast.”
And what do you think “enough gold” amounts to? When Alexander Hamilton made the dollar exchangeable for gold there was very little gold in the Treasury to back up the outstanding currency issue. Instead of the Treasury’s gold stock being “exchanged out of existence” the Continental Dollar was quickly bid up to par with gold. The gold standard doesn’t require every dollar to be backed by a deposit of gold, it does require the ability to exchange dollars for gold at a fixed price upon demand.
When Hamilton made the dollar exchangeable for gold there was not another currency for which even dollars were a limited exchangeable backing.
Today, most “money” is in fact outright debt. Remember M3? abandoned because it gave the scary truth of how over-leveraged our money supply is? For every paper dollar, there are 15-20 claims on that dollar. The cash in your bank account isn’t currency, it’s debt; the money you pay your taxes with isn’t currency (save for a few people, I stopped paying taxes in cash ~10 years ago), it’s debt; that $75 tank of gas you filled up this morning wasn’t paid with currency (safe bet on my part), it’s debt; etc.
Our debt-driven virtual-currency society uses cash - physical cash - as the “reserve”, for which the popular “currency” can be exchanged for. Assuming a generous 10-to-1 ratio for byte-bucks to greenbacks, and assuming a return to the gold-backed dollar at a similar 10-to-1 greenback to gold ratio, you’re looking at a hundred-to-one ratio of practical plastic dollars to real gold exchange. Should a mere 1% of our financial society decide to exchange the ethereal numbers in their bank account webpage for real money - and I think you can see the preference of saving real currency-backing gold over a couple bytes on a cloud computer - ALL that gold in Fort Knox disappears.
Good money: durable, verifiable, physical gold.
Bad money: a promise by a machine, displayed on a glowing screen.
“it does require the ability to exchange dollars for gold at a fixed price upon demand.” Bingo. 150,000 people - that’s 0.05% of the population - demand $10,000 in gold, and it’s all gone before the dollar is “quickly bid up to par with gold”.