Towards a Return of the Gold Standard?

Gold has been the standard currency for centuries. Each time the heart of the global economy shifted, gold reserves followed suit. Its use has continued to evolve throughout history until the establishment of the gold standard system, which lasted only a century, from the end of the 19th century until 1971. As central banks continue to increase their gold reserves in recent years, a sign of a shift in the world order, the question of a new international financial system is now more relevant than ever.

Currency is a human creation and lies at the heart of trade. In a way, it reflects humanity and can serve both the best and worst inventions. Throughout history, it has taken many different forms, successively represented by salt, shells, bronze, silver, and gold. Today, and for several centuries now, it has been issued solely through debt, whose value is based on the trust we collectively place in it.  

This new currency was itself integrated into various systems: initially issued in paper form at the end of the 17th century during the early days of liberalism, its creation by banks was then decoupled from the amount of gold held, which quickly led to banking crises and the emergence of central banks, starting with the Bank of England in 1694. It was subsequently regulated by the birth of the gold standard system (a system in which money creation corresponds to a fixed weight of gold) in the early 1870s, before experiencing further dysfunction when its creation was once again separated from existing gold reserves, particularly during the two world wars. Ultimately, this currency took a major turn with the emergence of financial globalization: it was definitively separated from the gold standard in 1971 (due to the needs of the United States during the Cold War), then issued in digital form from the early 2000s onwards, before arriving at the form we know today, which is almost exclusively dematerialized.

Money has thus become a debt, the creation of which is not only free from any physical limits but, above all, grows continuously through the accumulation of debts that generate interest, which is itself repaid by new debts... As we have seen, gold has been removed from its monetary role, while debt-based currency has succeeded in establishing its momentum toward a kind of Promethean ambition. So much so that the value of global debt now stands at $337.7 trillion, while the world's gold reserves are worth $23.5 trillion, or fourteen times less.

However, this currency has inherent imbalances due to the way it was created. As it is based on debt, it carries within it a dialectical movement that creates economic cycles, which manifest themselves in successive waves of inflation (rising prices) and deflation (falling prices) that cause its value to fluctuate constantly. Both are profound scourges that any economic justice system must confront.

Inflation is constant. As long as currency is not restricted by a physical limit, its creation can only be interrupted by a crisis of confidence. However, in the period leading up to the crisis, the amount of debt increases to exceed the needs of the real economy, not only reducing the value of the currency but also increasing the value of goods and services. Since scarcity creates value, when money loses its scarcity, its value gradually disappears. As a result, all countries around the world have experienced a gradual devaluation of their currencies for decades, particularly in relation to gold, which is naturally limited in quantity.

Inflation is not the only scourge: deflation is a major challenge that central bankers have been seeking to combat, particularly since the 1980s (which is why a 2% inflation target was devised). However, deflation is as natural as inflation in such a monetary system, as its economic cycles always end in crises. Once debts have accumulated to the point where repayment is impossible, the onset of a financial crisis can no longer be ruled out, leading to a negative spiral of falling wages and consumption, as well as a sharp drop in prices to negative levels. All the major powers of the last few centuries have experienced similar situations.

As Camus himself said in his day, the monetary problem is therefore one of the first to be solved. Currency must be spared these imbalances if it is to serve its main function: connecting human beings. Such an economic model has been conceived by many intellectuals, notably through the creation of a natural currency, also known as melting currency. The principle is simple: not only would its quantity be limited, but above all, as with all living things, it would melt over time, i.e., gradually lose its value when not spent. In this way, it too would be subject to a natural order, just as the human body is subject to gravity. This would accelerate monetary circulation, facilitate trade, and protect its value. This currency would solve an equation that debt continues to render unsolvable: bringing the quantity of money back into line with the quantity of goods and services produced, rather than attempting to bring the quantity of goods and services produced back into line with the quantity of money. This new monetary system would alleviate many ills. The concentration of wealth enabled by indefinite accumulation would be restricted, and so would its political power. Democracy would only be preserved.

This situation must occur before the catastrophe. It is now clear that the contemporary monetary system is coming to an end. In an era where promises are multiplied by the constant issuance of new debt, the commitment to repay them has become rarer than ever. As the world collapses under the weight of its own debts and dies in a future it no longer believes in, a global financial crisis looms. Above all, in line with the past decades, it risks ending in successive monetary crises in which currencies would reach a value equivalent to zero.

Gold has grasped the stakes of such a collapse. Its value is certainly driven today by several phenomena that are well known to all: de-dollarization, inflation, sovereignty, conflicts, trade tensions... But it remains above all linked to the conscious or unconscious understanding that the monetary system we have known until now is disappearing. The loss of value of currencies over the past decades has prompted central banks to turn to gold and the creation of their own digital currencies in order to maintain confidence. In both cases, the currency would then be free of debt. Gold, on the other hand, is not a debt, as it has its own value defined by its weight.

Central bank purchases are therefore likely to increase, as demonstrated by Germany's and France's desire to repatriate their gold reserves from the United States. Digital currency, on the other hand, is dependent on the stability of the central bank, whose equity capital can be negative, unlike that of governments, companies, or citizens. Similarly, experiments with the introduction of digital currency continue in most advanced economies.

However, a return to the gold standard as it existed in the past remains unlikely. The major powers, despite accumulating ever-increasing reserves, are not prepared to give up their wealth and growth to return to an outdated system. Gold has certain qualities that are necessary for an effective monetary system, but it fails to solve the problem of falling prices in times of crisis. Today, it is above all a marker of modern imbalances and the need for a transformation of the monetary system. As we move closer every day to a large-scale monetary and financial crisis, the need for a natural currency in a finite world where desire is infinite is more pressing than ever.