Paper or Gold

In our society today, money's value is measured by what it can buy—its purchasing power—not by its material worth, but it hasn't always been so. · My previous papers Impact of agriculture output on exchange rates and Currency competition-Survival of the fittest dealt with issues surrounding exchange rate and currency competitions. This paper- Paper or Gold discusses the validity of human society giving importance to paper money. · We all know that the human race always believes in experimenting and we as a society tend to maximize benefits by minimizing risks. The society has experimented with various materials as money and has finally settled to the usage of paper money. Many classical economists believed that paper money is not as worthy as commodity money—especially gold. · Turbulences in money markets make us wonder if the classical economists were right. This paper begins with an outline on trade and its importance. Trade has been very important, as it has aided many great civilizations to open doors for great conquests and for enhancing their economic prowess. · It is worth noting that the total supply of USD has increased by 30% over the past 3 years whereas the total supply of gold has grown by less than 6% over the same period. Gold is treated and internationally traded as a precious commodity, but in times of crisis and recession, it has been more often than not treated and traded as currency. The choice between commodity and inconvertible paper is that between determined or undetermined exchange values of the money. · In the aftermath of the gold standard and the inception of the Bretton woods agreement the currencies were defined in terms of their gold reserves. Gold is treated and internationally traded as a precious commodity, but in times of crisis and recession, it has been more often than not treated and traded as currency. It has been vehemently argued that gold is money as it performs the primary functions of money- unit of account, store of value, universal acceptance and mobility. · This tradition of classical economics stands solidly behind commodity money standard, like silver or gold, as the very embodiment of sound money. Note: The terms US Dollars, USD and dollars indicate the currency USD ($) and are used interchangeably in this paper.