The gold standard is not used in any other country – so nowhere is it a “matter of confidence.” [Even still, if you do the math, you will find that the US’s 8,200 tons of gold reserves (@735/oz.) = $193 billion of gold reserve for an M3 of $10,000 billion = only 1.93%.]
They traded dollars for gold only because they knew our reserves were depleted and that the money supply was so great in relation to that gold reserve they could maintain a run that would force the abandonment of the gold standard and the subsequent appreciation of the price of the gold they were accumulating. If the reserve was a higher percentage of M3 they could only expect that the U.S. would continue to meet the demand and a subsequent depreciation or stagnation of the price of the gold they were accumulating.
ONLY if the world believed we had a gold reserve sufficient to meet all demands and to defeat any protracted (dollars-for-gold) redemption scheme designed to force us to abandon that standard and drive the price of gold up again.
"We could also do a quasi gold standard.... If the price of gold is increasing, we would print fewer dollars or take more dollars out of circulation."
After the Civil War, dollars in circulation constituted almost the entire money supply. Even in 1960, dollars in circulation (including checking accounts) was about 50% of the money supply and today it’s below 15%. (See bottom chart in my Post #310.) All money being fungible, merely reducing dollars in circulation - without a reduction in the overall money supply - during a rise in the price of gold, would be insufficient to defeat dollars-for-gold redemption demand/schemes.
In short, the confidence that a currency was “as good as gold” never existed when gold reserves were such a low percent of the total money supply (not just dollars in circulation). You must raise one or lower the other.
If gold reserves can’t be increased sufficiently, do you really want a 3rd world style government devaluation of the dollar to reduce the entire money supply?
If you insist on dealing only with dollars in circulation, do you suggest outlawing withdrawals from none M1 accounts (such as savings, money markets, CDs, etc.) to prevent using that money to make dollar-for-gold redemptions?
Actually a few smaller countries are flirting with a gold standard, but they are too small to be a reserve currency.
*****They traded dollars for gold only because they knew our reserves were depleted and that the money supply was so great in relation to that gold reserve they could maintain a run that would force the abandonment of the gold standard and the subsequent appreciation of the price of the gold they were accumulating. If the reserve was a higher percentage of M3 they could only expect that the U.S. would continue to meet the demand and a subsequent depreciation or stagnation of the price of the gold they were accumulating.*****
I don’t remember the exacting timing of this, but sometime in the 60’s we went to a two tiered gold pricing. The central banks could exchange gold for dollars at the official rate. Then there was a different price in the market for everyone else. The market price was higher than the official price, so France and Belgium turn in dollars for our reserves and then sold the gold on the open market to make an immediate profit.
“If we would return to a gold standard, the value of gold would be exactly the same 10 years from now as it is today.”
ONLY if the world believed we had a gold reserve sufficient to meet all demands and to defeat any protracted (dollars-for-gold) redemption scheme designed to force us to abandon that standard and drive the price of gold up again.
You are forgetting about supply and demand. People need dollars for commerce. If there are too many dollars in circulation, the price of gold will go up. If there are too few dollars in circulation, the price of gold will go down. IF the price of gold is going up, the fed drains dollars from the world supply. If the price of gold is going down, the fed increases the dollar supply.
*****After the Civil War, dollars in circulation constituted almost the entire money supply. Even in 1960, dollars in circulation (including checking accounts) was about 50% of the money supply and today it’s below 15%. (See bottom chart in my Post #310.) All money being fungible, merely reducing dollars in circulation - without a reduction in the overall money supply - during a rise in the price of gold, would be insufficient to defeat dollars-for-gold redemption demand/schemes.******
Of course when I said lower the amount of dollars available I was talking the whole money supply. It would be foolish, to take dollars our of circulation and do the opposite by say lowering the reserve requirements for banks.
*****In short, the confidence that a currency was “as good as gold” never existed when gold reserves were such a low percent of the total money supply (not just dollars in circulation). You must raise one or lower the other.*****
What killed the gold standard was LBJ’s guns and butter during the Nam war. When the price of gold started to rise in the commercial market he just kept printing more dollars when the price of gold was saying there were too many out there.
*****If gold reserves can’t be increased sufficiently, do you really want a 3rd world style government devaluation of the dollar to reduce the entire money supply?*****
We could use the price of gold as a signal to either increase of decrease the money supply. The Fed could set say a $10 range for the price of gold. When gold was nearing the upper limit, the fed would decrease the money supply and vice versa when it was approaching the lower limit. No third world country could devalue the value of a dollar, we can only do that ourselves.