Global gold standard
This is an excerpt from a larger resource named Money, Bitcoin, and Time by Robert Breedlove.
Global Gold Standard
When they were being used as physical means of settlement, gold and silver coins served complementary roles. Silver, having a stock-to-flow ratio second only to that of gold, had the advantage of being a more salable metal across scales, since its lower value per weight than gold made it ideal as a medium of exchange for smaller transactions. In this way, gold and silver were complementary as gold could be used for large settlements and silver could be used for smaller payments. However, by the 19th century, with the development of modern custodial banking and advanced telecommunications, people were increasingly able to transact seamlessly across scales using bank notes or checks backed by gold:
With all of the critical salability characteristics gathered under a gold standard monetary system facilitated by paper bank notes, the superior salability across scales of physical silver lost relevance, setting it up to become demonetized (due to the winner take all dynamic discussed earlier). Ironically, the same banking industry that enabled a global gold standard would in later years see to its elimination (more on this later).
Driven by expanding telecommunication and trade networks, and with custodial banks enhancing its salability across scales by issuing gold-backed bank notes and checks, the gold standard spread quickly. More nations began switching to paper based monetary systems fully backed by and redeemable in gold. Network effects took hold as more nations moved onto the gold standard, giving gold deeper liquidity, more marketability and creating larger incentives for other nations to join.
Those nations which remained on a silver standard the longest before converting, like China and India, witnessed tremendous devaluations of their currencies in the intervening period. The demonetization of silver for China and India was an effect similar to the west Africans holding aggry beads when Europeans arrived. Foreigners who adopted the gold standard were able to gain control over vast quantities of the capital and resources in China and India. This drives home a key point: every time hard money encounters a softer form of money in a trade network, the softer money is ultimately outcompeted into extinction.
This dynamic has significant consequences for the holders of soft money and is an important lesson for anyone who believes their refusal of Bitcoin means they are protected from its economic impact. History shows us repeatedly that it is not possible to protect yourself from the consequences of others holding money that is harder than yours.
Finally, for the first time in history, the majority of the world economy began operating on a gold-based, hard money standard that was naturally selected for by the free-market.
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