Gold blog post

Author: howardjp

_posts/2026/2026-04-16-gold-is-fiat-currency-and-always-was.md

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+---
+id: gold-is-fiat-currency-and-always-was
+layout: post
+title: Gold Is Fiat Currency (And Always Was)
+date: 2026-04-16
+author: k3jph
+permalink: /2026/04/16/gold-is-fiat-currency-and-always-was
+featured_image: /assets/img/2026/gold-is-fiat-currency-and-always-was.webp
+categories:
+  - Blog
+tags:
+  - monetary policy
+  - economics
+  - public affairs
+  - public economics
+---
+
+Gold bugs will tell you the problem with modern money is that it is not backed
+by anything real. [Fiat currency](https://www.britannica.com/money/fiat-money),
+they say, has value only because the government declares it does. What we need,
+they argue, is a return to hard currency. Something with intrinsic value.
+Something like gold.
+ 
+Here is the problem: gold is fiat currency. It always has been.
+ 
+Consider what intrinsic value actually means. Oil has it. I can burn oil and
+cook dinner, heat a house, move a car down a highway. Wood has it. I can burn
+wood or build something with it. Bronze and iron have it. Better tools, better
+weapons, better infrastructure. These materials do things independent of what
+anyone declares them worth.
+ 
+Gold, prior to the late 1960s, did essentially none of that. You could make
+jewelry. You could make coins. Both of those applications derive their value
+entirely from the fact that people agreed gold was pretty and scarce and
+therefore worth wanting. [That agreement goes back a long
+way](https://onlygold.com/facts-statistics/history-of-gold/): archaeological
+evidence puts gold jewelry in Eastern Europe as early as 4000 BCE, and by 2600
+BCE it was central to Mesopotamian and Egyptian culture. That is not intrinsic
+value. That is a collective hallucination backed by tradition. Which is, to use
+the technical term, fiat.
+ 
+The dollar has value because the United States government says it does and
+because millions of transactions every day reinforce that agreement. Gold had
+value because ancient humans thought it looked nice and that agreement
+compounded across millennia. The mechanism is identical. One of them just has
+better branding.
+ 
+Now, something did change in the 1960s. We discovered that gold is an
+[exceptional electrical
+conductor](https://geology.com/minerals/gold/uses-of-gold.shtml), resistant to
+corrosion, and uniquely reliable in high-performance connections. Unlike copper
+or silver, gold [does not oxidize or
+tarnish](https://www.garfieldrefining.com/resources/blog/the-uses-of-gold-in-electronics/),
+making it the material of choice for connectors, bonding wires, and circuit
+board contacts where a failed connection is not an option. That is why it shows
+up in space probes, in military hardware, in high-end audio equipment, and in
+the contacts inside your phone. Gold finally acquired genuine intrinsic value,
+the kind that exists whether or not anyone agrees it should.
+ 
+But here is where the gold bug argument collapses entirely. The moment gold
+became industrially useful, it became a terrible candidate for a currency base.
+You do not want your monetary supply competing with the semiconductor industry.
+You do not want the money supply to contract every time someone builds a
+satellite. The [World Gold Council
+reports](https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2024/technology)
+that electronics consumed 271 tonnes of gold in 2024 alone, driven largely by
+AI infrastructure. That demand is structural and growing. A commodity with
+genuine industrial demand is not more stable as a currency foundation. It is
+less stable, because now it has two sources of demand pulling against each
+other.
+ 
+The gold standard was always a confidence game. [Nixon proved
+it](https://www.federalreservehistory.org/essays/gold-convertibility-ends) on
+August 15, 1971, when he closed the gold window and the international monetary
+system did not collapse. It adapted. Because the system had always been running
+on collective agreement, not on the inherent properties of a yellow metal. The
+[Bretton Woods system](https://history.state.gov/milestones/1969-1976/nixon-shock)
+lasted as long as it did not because gold is magical, but because enough
+countries agreed to behave as if it were.
+ 
+The gold standard worked, to the extent it did, for the same reason fiat
+currency works: shared belief, institutional reinforcement, and the absence of a
+better alternative that enough people would accept. The difference is that we
+have gotten considerably better at [managing monetary
+systems](https://corporatefinanceinstitute.com/resources/economics/fiat-money-currency/)
+since we were trading lumps of shiny metal by weight.
+ 
+Gold is fine. It is useful in electronics. It makes handsome jewelry. It is a
+reasonable store of value in a diversified portfolio, if you are into that sort
+of thing.
+ 
+It is not, and never was, the honest alternative to fiat currency. It was the
+original one.
+