The Bitcoin Journey
  • Why learn about Bitcoin?
    • Introduction
    • Table of contents
    • Changing nature of money
    • Role of money in protecting human rights
  • Trust problems with our money
    • Introduction
    • Banks: insolvencies, confiscation, and censorship
      • Gunman takes hostages at Beirut bank
      • Nigerian aid group finds sovereign lifeline in Bitcoin
      • Nigeria's central bank freezes accounts of police brutality protesters
      • Chinese depositors left in dark as three local banks freeze deposits
      • Freezing of bank account to shut down pro-democracy outlet
      • Hong Kong bank account freezes rekindle asset safety fears
      • Belarus tells banks to seize money raised to help out protesters
      • Banks have started to freeze accounts linked to Ottawa protests
      • Whose bank accounts can be frozen through the Emergencies Act?
      • Kremlin critic Navalny's bank accounts frozen
      • Long lines at Myanmar banks after coup
      • The Cyprus banking crisis and its aftermath
      • Bailout blackmail claims Cyprus president
      • Afghan central bank says U.S. plan for frozen funds an 'injustice'
      • Afghanistan sanctions from a first-person view
    • Central banks: money supply and currency debasement
      • Inflation by Wikipedia
      • Monetary inflation across the world
      • Inflation affecting Argentinian citizens
      • Inflation affecting Turkish citizens
      • Egypt devaluates currency by 48%
      • Bitcoin has saved my family
      • Problems with the CFA
      • Role of money in protecting human rights
      • Hanke's inflation rates
      • Milton Friedman on inflation
      • Inflating away sovereign debt in developed countries
      • How inflation is disproportionally affecting the poor
      • Financialization of an economy
    • A note on CBDCs
      • Impact of CBDCs different across the world
  • So, why do we need banks?
    • Introduction
    • Hard money and gold
      • Money and hardness
      • Gold as the hardest money (p1)
      • Gold as the hardest money (pt2)
      • Hard money survives
    • Problems with gold and resulting centralization
      • On centralization of gold
      • Layered money speeding up commerce
      • Global gold standard
      • The order of technology leading to centralization
      • Nations inflating their debt away
    • Abandoning hard money
      • Abandoning the gold standard
      • Abandoning the gold standard (pt2)
      • Breaking the gold standard completely in 1971 pt1
      • Breaking the gold standard completely in 1971 pt2
      • WTF happened in 1971?!
    • Digital money and eCommerce
    • Summary by Lyn Alden
  • What if?
    • Hayek on money the government can't stop
    • The first email
    • The first post
    • The Bitcoin whitepaper
  • How does Bitcoin work?
    • Introduction
    • Computers, code, and a ledger
      • Role of nodes
      • Full nodes
    • Mining and proof-of-work
      • Reaching decentralized consensus
      • Reaching decentralized consensus (pt2)
      • Dealing with conflicts
    • Where do bitcoins come from?
      • Bitcoin's money supply
      • Difficulty adjustment
    • The superpowers of a Bitcoin user
      • Public addresses and private keys
      • Signing transactions
      • Wallets and mnemonic phases
  • What is Bitcoin?
    • Outro
  • Getting started with Bitcoin
    • Using Bitcoin
      • Obtaining bitcoin
      • Storing bitcoin
      • Paying with bitcoin
    • Working for Bitcoin
    • Learning more about Bitcoin
  • Contribute
  • Support me
Powered by GitBook
On this page
  1. So, why do we need banks?
  2. Problems with gold and resulting centralization

Global gold standard

PreviousLayered money speeding up commerceNextThe order of technology leading to centralization

Last updated 2 years ago

Creator
Time
URL

Robert Breedlove

2min

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.

Full source
Old US dollar bill