On centralization of gold
This is an excerpt from a larger resource named Money, Bitcoin, and Time by Robert Breedlove.
As multiple societies had now converged on gold as their universal store of value, they experienced significant decreases in trade costs and an attendant increase in free trade and capital accumulation. La Belle Époque was an era of unprecedented global prosperity. However, the hard money gold standard which catalyzed it suffered from a major flaw: settlement in physical gold was cumbersome, expensive and insecure. This flaw is associated with the physical properties of gold, as it is dense, not deeply divisible and not easily transactable. Gold is expensive to store, protect and transport. It is also heavy per unit of volume which makes it difficult to use for day to day transactions.
As discussed earlier, banks built their business model around solving these problems by providing secure custody for people’s gold hoards. Soon after, banks began issuing paper bank notes that were fully redeemable in gold. Carrying and transacting with paper bank notes backed by gold was much easier than using actual gold. Offering superior utility and convenience, the use of bank notes flourished. This, along with government programs to confiscate gold from citizens (such as Executive Order 6102 in the United States), encouraged the centralization of gold supplies within bank vaults all over the world.
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