Can Gold Really Replace the US Dollar?

Faith in the US dollar is especially weak because the US government keeps on spending money it doesn’t have by borrowing from the generous printing presses of the Federal Reserve.

Countries like China have lost some faith in the US dollar.   US citizens are starting to hoard precious metals.  Even US states are trying to encourage alternative currencies. 

A key question is if gold can actually be a currency and replace the dollar.  If not, it’ll be confined as an investment vehicle or a store of value, which must be converted back to the dollar to be used for commercial transactions.

No

Some people rejected this possibility.  One is ‘Bond King’ Jeffrey Gundlach.

In an interview with Business Insider, Gundlach said in a real financial meltdown, people shouldn’t hoard gold.  Instead, they should hold physical cash, which can’t be wiped out by a digital crash. 

“[You’re not going to] walk around with a cube of gold to shave off a few grains to pay for your slurpee at 7-11,” he said.

“Gold gets you here to the other side of the crisis but it’s not much of value in the middle. If you end up in such a crisis, you’re probably going to need…currency,” he said.

Gundlach also complains that gold is too heavy to carry around.  So if one really wants to use a commodity as a medium of exchange, he recommends gem stones.

Yes

Proponents of the gold currency say yes.

First, there are gold coins.  A one-ounce gold coin, for example, would fetch over $1,500.  Therefore, it’s practically possible to carry around tens of thousands of dollars.

What about for small purchases?

A 1/10-ounce silver coin would only be worth about $4, so precious metal currencies are also small enough for practical uses.

Moreover, credible gold depositories can issue gold certificates redeemable by physical gold.  That way, using gold as a currency is as easy as using a fiat paper currency.  In fact, goldsmiths issuing gold certificates was one of the earliest forms of banking in Europe.

The NYTimes also reported that a Utah man is working on a deal to issue credit cards backed by physical gold holdings, which makes spending gold even easier. 

Generally speaking, digital gold currency (DGC) – or electronic mediums of exchange based on physical gold holdings – is an idea that has been around for years.

The concept is technically sound.  However, it hasn’t taken off yet due to issues like integrity, transparency, and cost.