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Gold is one of the most dynamic elements of the modern economy and some might find it funny that the oldest form of valuing physical commodities is still thriving today. The first gold coins were produced in 700 BC and since then the precious metal has been used as the primary exchange element. The fact that gold was scarce and highly valued made it the perfect means of exchange, regardless of what the exchanged items were. The history of gold turning into money spans over a period of 2600 years and the turning point in gold's history is the year 1971.
How Did Gold Become Paper?
Throughout history, gold and silver coins went through a process of debauching. Such coins began to be created out of gold and other metals, thus making the values of the actual coinage fluctuate in time. The process of turning physical gold into money began when goldsmiths, who used to store gold for other society members for a fee, started to issue receipts for their storage. The receipts idea spread quickly as it was more convenient than carrying the actual metal with them, so people began to get accustomed to the idea of paper money. Goldsmiths gradually turned into bankers and the currency evolutionary process continued developing.
Why Did The Gold Window Close?
The 15th of August 1971 is the day when the "Gold window" was closed by the American president Richard Nixon. From that moment on, paper money could no longer be converted to gold, a fact that took the precious metal out of currency exchanges. In order to understand why the situation with gold in the economy reached this point, let's travel back in time to the moment when bankers saw the opportunity of replacing metal with paper money. Since they had the power of issuing the receipts for gold, bankers thought of producing more receipts than the amount of gold they held. But, as you would expect, this practice also became popular and bankers soon started lending these receipts to the early governments and to the monarchs of the epoch.
New Acts And Regulations Concerning The Use Of Gold
England was the country where bankers created the first central bank. The main purpose of such a bank was to lend money to monarchs, but it also served as protection for those bankers who issued more money than they could redeem in gold. However, it became obvious that this practice had a negative impact on the country's economy. This lead to the apparition of the "Peel's Bank Act", which stated that banks are not allowed to issue more paper money than the gold they actually had in reserves. Thus, the importance of gold as a decisive factor in the global economy remained high all throughout modern financial history. What Do You Know About Modern Gold?
An interesting evolution of gold prices began in 1934, when gold was priced at $ 20. In the period until 1971, the gold price remained around $35. However, with the changes that occurred in the global economy, gold prices reached $300 and they remained above or very near this threshold. Various factors in the geopolitical world had their influences on the evolution of modern gold prices.
Can Gold be Controlled?
Do you ever think about gold when you are going to work or while shopping? Even though our modern society perceives gold more as a fashion item, nations still rely on the power of the precious metal in order to keep their economies balanced. We might not see gold in stores, while paying our taxes, or while taking credits from a bank, but it is an element profoundly involved in all these actions. It is fair to say that, throughout human history, we were often the ones being controlled by this precious metal, and not vice versa, as most people believe.
About the Author
Dean Brown is the Author of "A Guide To Investing in Gold", an e-book decidated to helping people understand that gold is an essential part of any investment portfolio. To get more details and enroll in Dean's free mini-course on Gold Investing, go to http://www.goldinvestingbook.com
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