Why not use gold and silver coins?

Question

Why not use gold and silver coins instead of fiat (or even currency backed in gold)?

Answer 1

Use of gold or silver would make it impossible for the government to inflate prices using the printing press. There is only a finite amount of these metals so government meddling in prices would be severly curtailed. By using the printing press, government can also wipe out personal savings, something it cannot do with gold or silver.

Answer 2

Before the invention of money (long long ago, in a galaxy not so far away), people used barter in order to get the things they didn't have enough of. This became quite cumbersome, so they agreed on a representative unit of wealth. Rather than having to carry around anvils, or fish, or wool whenever you had to buy something, they instead carried around this unit of currency - in many cases, it was gold (today, it might be dollars).

At some point in the history of banking, this unit of currency was no longer used, but was instead replaced by the writing of paper checks from one bank account to another. However the gold remained in the bank, even though it was no longer used - this was an attempt to give some legitimacy to the new paper notes being used - the gold standard.

The problem with this idea is that it is similar to the creation of a "dollar standard" - creating a new currency to use, while holding a reserve of dollars in the bank to give the new currency some legitimacy. The problem is that the commodity held in reserve was merely a unit of exchange and derives its value mainly from its previous use as currency. The original backing of the currency is lost.

The Sumerians, as part of their development of a standard of weights and measures, placed the royal stamp on each piece of gold to guarantee that it was the same amount as every other similarly stamped gold piece. They simply agreed that this was worth a bushel of wheat - the value was never in the gold. For each amount of gold issued by the king, a certain amount of wheat is kept in reserve in order to ensure that gold has some value. This ensures that the value of the gold with respect to wheat did not change - no inflation. When the gold is returned to the king, it is redeemed with the wheat that it represented. This, in effect, is a "wheat standard".

Answer 3

The main reason is Gresham's Law, and the fact that metals have become more commodities than stores of value in the last 50 years. It used to be that the price of gold and silver didn't change from year to year, and in that environment you can make a dollar coin with 80 cents of silver and have it circulate. However, (and there are many instances of this in US history, not just 1965), when the value of the precious metal rises above the face value, people pull the coins from circulation to melt them. The real trajedy is that commerce grinds to a halt, since there is no money to circulate and to pay for goods. That is the real danger, that rising metal prices would lead to a shortage of currency, and the shortage of currency would lead to a depression.

Answer 4

When the value of the metal in the coin exceeds the value in the coin production costs too much. The gold standard was adopter after the great depession to give people confidence in the money. This is not needed as today the money is backed by the productivity of the country. It may return on day though.

Answer 5

Because gold and silver coins are worth more
than the coined value that they represent

So we now use copper, nickel, cadmium, and some silver in coins

Answer 6

(1) To make gold or silver currency would (a) be too heavy to carry large amounts of, and (b) could not be covered by our reserves, we simply couldn't make enough with the amount of material we have

(2) People could more easily counterfeit and,

(3) People would melt it down to sell if its value dropped below the price of gold

Answer 7

I'm not positive, but I'm betting there's not enough gold or silver to distribute as legal tender. Also, like one of the other answers to this question, there would be to much 'change' in our pockets and it would quite heavy to carry it with you unlike currency 'bills'.
Mack

Answer 8

I don't know how much a once of gold is worth right now but thousands of dollars could be easily carried in your pocket. Weight isn't the problem.

The problem is the government could play fast and loose with spending. Right now all they have to do is print money and spend it. Thats why your money is worth less and less each year.

After all are prices going up or is the value of your money going down. One fellow nailed it, this wipes out your savings account.

Inflation doesn't hurt the tax collectors because it allows them to collect capital gains because you're being taxed on inflation.

Answer 9

Because metal money is too expensive to make and transport. Also, keep in mind that currency accounts for only about half of the U.S. M1 and about 10% of U.S. M2; the rest is pure credit.

Answer 10

There's not enough buillion to go around. That's what caused the rise in the use of paper money in the first place, was the need to represent value without the use of precious metals.