Let me just break this down for you:
www.bbc.co.uk/news/magazine-25255957
The seminal moment came in 1973, when Richard Nixon decided to sever the US dollar's tie to gold.
Since then, every major currency has been backed by no more than legal "fiat" - the law of the land says you must accept it as payment.
There is no legal tender in Britain. This is a completely misnomer. You don’t have to accept any currency as payment, conversely you may accept anything other than currency as payment.
www.royalmint.com/aboutus/policies-and-g...al-tender-guidelines
Legal tender has a very narrow and technical meaning in the settlement of debts. It means that a debtor cannot successfully be sued for non-payment if he pays into court in legal tender. It does not mean that any ordinary transaction has to take place in legal tender or only within the amount denominated by the legislation. Both parties are free to agree to accept any form of payment whether legal tender or otherwise according to their wishes.
Please continue BBC.
Nixon made his decision for the simple reason that the US was running out of the necessary gold to back all the dollars it had printed.
The Nixon government did not end the gold standard because the US was running out of gold! This is an absolutely ridiculous assertion, even Wikipedia completely contradicts this. This has actually been completely proven recently by records of conversations in the White House involving Kissinger, but it's well known anyway. He wanted to expand the monetary supply so that the US could continue to expand militarily overseas. We know this for a fact.
And here lies the problem with gold. Its supply bear no relation to the needs of the economy. The supply of gold depends on what can be mined.
This isn’t the point of the gold standard. While it is a far from ideal mechanism, it is supposed to provide some mechanism of restraint to the way that currency is issued. To quote Wikipedia:
en.wikipedia.org/wiki/Gold_standard#Advantages
The gold standard makes it difficult for governments to inflate prices through expanding the money supply. Under the gold standard, significant inflation is rare, and hyperinflation is essentially impossible because the money supply can only grow at the rate that the gold supply increases.
To suggest that whatever money printing takes place is just required by ‘the economy’ is ludicrous. If you’re going to take that to its natural conclusion then you’d be suggesting that when the Weimar Republic had the general public wheeling around currency in a wheelbarrow that was merely serving the needs of the economy! Or the same in Zimbabwe, or any number of other nations where this has happened, and is happening to this day.
But when people still believe the following:
en.wikipedia.org/wiki/Gold_standard#Disadvantages
Mainstream economists believe that economic recessions can be largely mitigated by increasing the money supply during economic downturns. The gold standard acts as a limit on economic growth. "As an economy's productive capacity grows, then so should its money supply. Because a gold standard requires that money be backed in the metal, then the scarcity of the metal constrains the ability of the economy to produce more capital and grow."
It’s not overly surprising that we have a few problems.
Since then, the problem has typically been the opposite - the supply of gold has been too rigid. For example, many countries escaped the Great Depression in the 1930s by unhitching their currencies from the Gold Standard. Doing so freed them up to print more money and reflate their economies.
The demand for gold can vary wildly - and with a fixed supply, that can lead to equally wild swings in its price.
Most recently for example, the price has gone from $260 per troy ounce in 2001, to peak at $1,921.15 in September 2011, before falling back to $1,230 currently.
That is hardly the behaviour of a stable store of value.
So, to paraphrase Churchill, out of all the elements, gold makes the worst possible currency.
Here is the purchasing power of the pound and dollar since they started 'serving the needs of the economy'.
Nevertheless, the person that wrote the original article, Justin Rowlatt, calls himself a journalist.
