Since Nixon repudiated any connection between gold and the dollar in 1971, we are now using what is a “virtual currency”. It literally has no concrete value except what it can buy and except what time-value (interest rate) the market will bid for it at a given moment.
This would not be so bad except governments (because all are doing it, not just the US) are creating money out of thin air. They are addicted to doing so. They have designed their social programs to depend upon the constant expansion of the money supply. What they have planned is for the constant inflation of the value of money.
If some central bank decide to pull out of this scheme and to tie the value of its currency to a basket of commodities or to gold itself, here is the simple truth:
There is no very much gold (as expressed in ounces) compared to the ocean of dollars, or Euros, or any other currency. Therefore, in order to “monetize” or “express” the wealth held in, for example, Euros, the value of gold as expressed in Euros would have increase by a factor of 10x or 20x!
If the ECB were to tie the Euro to gold, it would have to do so overnight and all at once. That would mean the game of borrowing and inflating paper and electronic money would be over. In an instant, the world’s trading powers would start to use that new currency and dump their fiat ones, because after all who wants to hold a piece of paper backed by pieces of paper when they can hold a piece of paper that is a warehouse receipt for a that much gold?
The US Dollar as a world currency would be instantly replaced, and the price (in dollars) of anything we had to import would instantly jump, and start to creep upwards dramatically.
I first saw this idea on the blog fofoa.blogspot.com. He calls the concept “freegold”. See the article 100:1, that is after you read the most recent article on gold and money.
“Freegold” has the additional advantage for Europe that it would allow them to pay down their own debt in a one-shot transaction. Dump the US, destroy it as an economic power, make your own currency the medium of global exchange and pay down your debt? What’s to lose except it would kill export sales to the US. Maybe there will be a time when that is not such a bad thing.
.....Therefore, in order to “monetize” or “express” the wealth held in, for example, Euros, the value of gold as expressed in Euros would have increase by a factor of 10x or 20x!.....
You have it right and something like that will happen. The multiples are huge. The key to the thinking is not to value gold in existing currencies, but to value currencies in a fixed amount of gold.
When gold becomes the standard, there is no way to calculate the ratios. The value will be determined when the dust settles
That's a lot of people waiting for their "government checks."