Final part: The future of gold?

One painful fact that we need to be aware of is all the fiat money in history has collapsed. In the 19^th and 20^th centuries, some countries have faced with this problem. For example, the United State (1861-1865), Russia (1921-1922 and 1992-1999), Japan (1948-1951) and China (1948-1949) (Blogdial, 2012).

In 2012, the world economy has not been cured of the consequences from the 2008 economic crisis, yet. Now it is in danger of the sovereign debt in Europe. As Gordon Gekko (2010) mentioned that “economic crisis is in fact a currency crisis”. White, in an interview with abc news in 2011, stated “ European nations and Japan would also have to make the switch to make to system work better internationally".

Source http://goldnews.bullionvault.com/gold_central_banks_052420101

The price of gold has experienced a sharp increase in recent years. Beside the large demand gold for jewel, industries (health care, technology etc.), the demand of central banks is HUGE. We can see at the above graph of European central banks. Will gold come back to the monetary system as expected by some big guys like Robert Zoellick, the president of the World Bank. It is truly a big question. Edmund Conway (2011) warned us “No doubt gold is in a bubble, but all bubbles start with the germ of a good idea, which in this case is that the present system for running the world economy is close to breakage.” Recently, in May 2011, Utah state was the first in the US legally accept gold and silver coins while some other states are “expected to follow” Utah’s example (acb news, 2011). 

Theoretically, Dowd (1996) suggested discontinuing of precious metal. Instead the next monetary system generation could be based on “a basket of goods and services” which helps to “reduce the price-level instability” and people will happy to accept because it creates the price-level stability (White, L, 1999, p.23).

Dowd’s basket suggestion is such a good idea. In my opinion, however, by putting gold in that basket might create a better stability one. White (1999) claimed that, it may not be reliable when people concluded that “real income was less stable under the gold standard”. More importantly, history proved that gold makes people feel more confident in the banks (Khanacademic, 2011). In the period using bank issued money backed by gold, people did not directly use gold for exchanging. Gold was just stored in the banks’ vaults. But people simply believe in their banks. Last but not least, whether gold standard will comes back or not, the vital thing supports to the new monetary system is the international cooperation which helped classical gold standard was obeyed in many countries in the past.