Yesterday, Federal Reserve Chairman Ben Bernanke got all confused when asked whether gold is money and why central banks hold gold instead of diamonds. Watch the last 32 seconds of this youtube clip:
I know I am not the Chairman of the Federal Reserve, but at least I’ve heard about fungibility. Heck, even wikipedia mentions:
Diamonds are not fungible because diamonds’ varying cuts, colors, grades, and sizes make it difficult to find many diamonds with the same cut, color, grade, and size.
In contrast to diamonds, gold coins of the same grade and weight are fungible, as well as liquid.
If the Fed Chairman needs more information about why gold is money, he should google “why gold is money.” Now, I just need a good answer as to why pieces of paper with pictures of Presidents on them are considered money.
For years, gold bugs and other “crazies” have called for returning to the gold standard. “Smarter” people argued against using the “barbarous” metal as a standard, foretelling a return to the Dark Ages. Well, the “crazies” no longer look so crazy and the “smart” people no longer look so smart. Marketwatch reports:
The president of the World Bank said in a newspaper editorial Monday that the Group of 20 leading economies should consider adopting a global reserve currency based on gold as part of structural reforms to the world’s foreign-exchange regime.
“Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today,” said Zoellick.
He said such a reform would reflect economic realities and should be considered as a successor to the existing global currency paradigm known as “Bretton Woods II.”
Zoellick said a return to some sort of currency link to gold would be “practical and feasible, not radical.”
To adjust Churchill’s famous quote for this situation: The gold standard is the worst system of currency, except for all those other systems that have been tried.
Posted in Capitalism, Economics, Gold
Tagged Currency, Dark Ages, G-20 major economies, gold, Gold standard, International monetary systems, Reserve currency, Robert Zoellick, World Bank