馃獧 WHAT COULD HAPPEN IF THE GOLD STANDARD RETURNS? 馃獧
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Gold has been used since ancient times as currency. However, towards the 13th century it began to become standardized and in 1257 Great Britain set the price per ounce at £0.89, increasing ± £0.75 each century:
1351 – £1.34
1465 – £2.01
1546 – £3.02
1664 – £4.05
1717 – £4.25 (held until the Bretton Woods agreement in 1944)
This means that it had a return of ±378% in 460 years (a rate of ±0.34% annualized). In the 19th century, some countries began to back their currency with gold, until the United States finally started the gold-dollar standard in 1900, setting it at $20.67 USD an ounce. In 1944, due to the Bretton Woods Agreements, the dollar became a reserve currency (backed by gold), finally in 1971, said support disappeared and the United States appropriated most of the reserves.
The above is important to answer what could happen if it is adopted again and eventually another nation becomes hegemony. Analyzing the statistics, from 1900 to 1971 (years of the gold standard) there was a return of ± 130% in 71 years (± 1.2% annualized). From 1971 to 2023 (years without a gold standard) there has been a yield of ±5,471% in 52 years (±8% annualized). Ergo, if the British and American experience is considered, it could be concluded that the adoption of gold as a backing would reduce its profitability, stabilizing it and perhaps preventing it from exceeding ± 2.6% annualized for centuries, without preventing it from becoming negative in some years.
Paradoxically, gold has been sought refuge due to its attractive rates in recent decades (± 8% annualized; not bad but not spectacular either), but this impulse could be explained by its abandonment as a monetary tool. Finally, the higher the forks, the lower the volatility, and vice versa; Therefore, its return may not endow nations with great wealth, since it is a limited resource that by itself does not cause innovation, progress or development (and the best example is the overaccumulation of metals in Spain in the 16th- XVIII and its bankruptcy as a power).
The best analysis is yours!
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Gold has been used since ancient times as currency. However, towards the 13th century it began to become standardized and in 1257 Great Britain set the price per ounce at £0.89, increasing ± £0.75 each century:
1351 – £1.34
1465 – £2.01
1546 – £3.02
1664 – £4.05
1717 – £4.25 (held until the Bretton Woods agreement in 1944)
This means that it had a return of ±378% in 460 years (a rate of ±0.34% annualized). In the 19th century, some countries began to back their currency with gold, until the United States finally started the gold-dollar standard in 1900, setting it at $20.67 USD an ounce. In 1944, due to the Bretton Woods Agreements, the dollar became a reserve currency (backed by gold), finally in 1971, said support disappeared and the United States appropriated most of the reserves.
The above is important to answer what could happen if it is adopted again and eventually another nation becomes hegemony. Analyzing the statistics, from 1900 to 1971 (years of the gold standard) there was a return of ± 130% in 71 years (± 1.2% annualized). From 1971 to 2023 (years without a gold standard) there has been a yield of ±5,471% in 52 years (±8% annualized). Ergo, if the British and American experience is considered, it could be concluded that the adoption of gold as a backing would reduce its profitability, stabilizing it and perhaps preventing it from exceeding ± 2.6% annualized for centuries, without preventing it from becoming negative in some years.
Paradoxically, gold has been sought refuge due to its attractive rates in recent decades (± 8% annualized; not bad but not spectacular either), but this impulse could be explained by its abandonment as a monetary tool. Finally, the higher the forks, the lower the volatility, and vice versa; Therefore, its return may not endow nations with great wealth, since it is a limited resource that by itself does not cause innovation, progress or development (and the best example is the overaccumulation of metals in Spain in the 16th- XVIII and its bankruptcy as a power).
The best analysis is yours!
Mtro. J. Joel Padilla
https://www.linkedin.com/in/joelpadilla/recent-activity/
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https://www.linkedin.com/in/joelpadilla/recent-activity/
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Copyright: Joel Padilla 2023
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