Not ever before that our world is so connected, because technology allows us all to trade and travel in seconds. Just imagine this, before the Internet age, we were pretty fast, because we could travel the world in hours and very few days through flying on airplanes. Nonetheless, age before the Internet is pretty slow comparing to now, because traveling around the world is no longer requiring us to be physically there. Instead of just flying around the world, we can simply utilize the Internet to interact with various parts of the world in seconds. Why traveling in the first place? Sight seeings and trading and get to meet people and tasting different cultures and foods are probably on the todo list for many people, but the Internet allows us to do most of the stuffs I mentioned in seconds. Of course, without physically traveling, we cannot use the Internet to have firsthand experience. Nonetheless, with technology improves we might just as well be able to use virtual reality to somewhat attain the firsthand experience of physical traveling. Trading is obviously done in seconds in the Internet age, and this has let the physical retail stores and what not to become almost obsoleted. Fortunately, it’s that, nothing has yet to beat the firsthand experience of whatever, thus the physical retail stores might be able to retain the customers who prefer to have the physical feel and touch of things. Too bad though, the trend is that many people rather go to physical stores for showroom experience, and then they go home to purchase the products they want on the Internet.
With being so connected as how we are now, it does seems that a small hiccup in the market would not be able to stir any storm and damage the wealths of many people. Unfortunately, since we are so connected, a huge hiccup might churn out a firestorm that is huge enough to bring down the world market. If this happens, the whole world will be in depression. This almost happened in 2007-08, but China was holding up really good and stopped the whole world’s market from collapsing even more. Nonetheless, I feel that, it is possible for a scenario such as a whole world’s market to really collapse and destroy all economies at once. This is possible since we’re so connected and using only fiat currencies. Never ever before in our human history that we have all countries using fiat currencies. Some wise homo sapiens once said, the strongest link could also be the weakest link. By being so connected, our economies could affect each other fast and furious, and so this would allow change to happen fast and furious. When positive things are happening in the world market, this contributes as the strongest link. The opposite could happen, and this would be the weakest link for the world market. At the strongest link, positive effects would echo throughout the world at fast and furious speed. At the weakest link, negative effects would also echo throughout the world at fast and furious speed.
Nowadays, we are using several main currencies that are known as reserve currencies. The Dollar is the prominent of them all at this very point in time, but we never know how long can the Dollar hold this prominent reserve currency status. If the world isn’t so connected, the multiple reserve currencies might be a panacea for world economic structural problems, because one economy can always spread foreign reserve wealth into multiple reserve currencies for diversifying. Unfortunately, our world is so connected in a way that all reserve currencies’ hosts can be taken down, consequently rendering the reserve currencies themselves to be on the fringe of uselessness. This has me thinking that perhaps gold and silver and other valuable metals are still very much the sort of wealth that us people may need to turn to if a perfect storm does hit the world market and bring down the world market in one fell swoop.
Just like fiat currency, gold and other valuable metals are backed by nothing. Intrinsically though, gold is being used practically. This means gold does have industrial applications. Let me list a few gold’s industrial applications here.
- Dentists can plant new gold teeth for patients.
- Gold can be used to prevent rust and corrosion of important components within electronic devices.
- In the medical field, gold can be used for various purposes such as treating patients with arthritis (gold salts reduce swelling, bone damage, joint pain, and stiffness).
- Architects and builders can use gold to design beautiful structures.
- Space devices can use gold to reflect radiation and cool temperature.
Besides gold’s few industrial applications, people like gold for its shininess and immune to rust qualities. Before the well known use of gold in several modern industries, gold was being used as money since the early period of the entire human history. Gold was minted into coins and so forth. Since the dawn of human history, gold was used as money then was replaced by whatever and then it made a comeback, rinse and repeat kind of event really. In our modern history, president Nixon of the United States abandoned the gold standard, thus he was effectively allowing the Dollar to not be redeemable by gold. Since the Dollar was the most prominent (and still is at the moment) reserve currency in the world, Nixon’s gold standard abandonment was effectively put the world on fiat based standard, only.
With the knowledge of how humans tend to turn back to gold in hard time to hedge against paper currencies, it’s not too hard to see how people like us nowadays see gold might play the role of hedging against the possible collapsing of the fiat based standard. Silver is considered to be a lesser quality metal than gold, but silver does have practical industrial applications too. Nonetheless, I won’t elaborate on silver in this blog post. With gold and silver and other valuable metals around, I think people and governments alike will use these metals in hard time as money.
To summarize everything up, what makes fiat currencies valuable is that people around the world see them as valuable. Regardless fiat currencies are backed by anything, as long people of the world think fiat currencies are good enough as a unit of account, the fiat currencies can go on being the monies. Unfortunately, people are usually illogical. This is why if the so connected world market like ours stops functioning somehow, people aren’t going to wait around for the consensus that the fiat currencies will be OK. Instead of waiting around, people may have a run on the fiat currencies and hoard golds and silvers. This is when people will see golds and silvers as monies. Perhaps, some people may argue that if the dollar collapses, the market will turn to IMF’s SDR (Special Drawing Right) or China’s Yuan as the reserve currency. Since nobody knows the future, they maybe right, but I argue that none of those so called possible reserve currency replacements can hold water to gold and silver. After all, gold and silver do have industrial application values and these metals have been used as unit of account over and over again in our past histories. Moreover, I question the ability of IMF’s SDR or any other single fiat currency can be confident enough to rescue the fiat standard from hell. By this I meant if the fiat standard does go to hell, by then it’s way too tough for any other fiat currency to be able to rescue the fiat standard system. People may just as well turn to gold and silver as a change!
- http://www.usfunds.com/slideshows/the-many-uses-of-gold/#.U7eUPI14EVE (link)
- http://en.wikipedia.org/wiki/Unit_of_account (link)
- http://en.wikipedia.org/wiki/Nixon_Shock (link)