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I think that his point is that 100% gold backing would make the price of gold very high, and a partial gold backing would be easier to accomplish with many of t

I think that his point is that 100% gold backing would make the price of gold very high, and a partial gold backing would be easier to accomplish with many of the same benefits like better long term stability (if some shorter term pain).

thaumasiotes 7y ago
So, in these two scenarios: 1. The currency is 100% backed by gold. 2. The currency is 20% backed by gold. How much gold does it take to purchase 200 apples? You are saying that it will take more gold in the second case, right? Why?
- pillpicket 7y ago
  No in the first case it might take 1 currency to buy 200 apples. Then in the second case it would take 5 currency to purchase the same 200 apples. 1 gold = 200 apples 1 gold * 1 currency = 200 apples 0.2 gold * 5 = 200 apples
  - thaumasiotes 7y ago
    That's what I was saying, but mark_l_watson is saying that in case 1 the price of gold is higher, meaning a smaller amount of gold to buy the same number of apples.
    - mark_l_watson 7y ago
      I don’t have Rikard’s book in front of me, but from memory I think he was saying that the price of gold would adjust to $10K/ounce if currency were 20% backed by gold, but the price of gold would have to be much higher than $10K/ounce if currencies were 100% backed by gold. I don’t invest in gold, I have always thought that income property is the best investment for common people like myself. Rikard has a different opinion and thinks people should own gold in their portfolio (like 5% gold). I don’t understand the gold market, while income property is easier to understand.
- jonex 7y ago
  In this case I interpret "backed by" as that the central bank will give you the corresponding amount of gold for your currency. But, the opposite would not be true, they won't give you currency for gold alone, you'd have to also provide the same kind of backing as for non gold backed currency. So paid in gold or the currency, you'd get the same number of apples in each case. But if you'd convert the currency to gold via the central bank (rather than on the open market) you'd get 1/5 as many apples in the second case. In normal operations this won't make any difference, no one in their right mind would use the central bank rather than the open market to buy gold. But it means that the central bank can't just print money as they see fit, reducing the risk of runaway inflation. It also acts as insurance in the case of runaway inflation, you'll lose at most 80% of the value.
  - erikpukinskis 7y ago
    In the case of Russia, does anyone really expect the central bank to “give you” gold in exchange for notes in a crisis? They’ll certainly exchange some amount of gold for something but I doubt it would be the face value of the notes.

thaumasiotes 7y ago

So, in these two scenarios: 1. The currency is 100% backed by gold. 2. The currency is 20% backed by gold. How much gold does it take to purchase 200 apples? You are saying that it will take more gold in the second case, right? Why?

pillpicket 7y ago
No in the first case it might take 1 currency to buy 200 apples. Then in the second case it would take 5 currency to purchase the same 200 apples. 1 gold = 200 apples 1 gold * 1 currency = 200 apples 0.2 gold * 5 = 200 apples
- thaumasiotes 7y ago
  That's what I was saying, but mark_l_watson is saying that in case 1 the price of gold is higher, meaning a smaller amount of gold to buy the same number of apples.
  - mark_l_watson 7y ago
    I don’t have Rikard’s book in front of me, but from memory I think he was saying that the price of gold would adjust to $10K/ounce if currency were 20% backed by gold, but the price of gold would have to be much higher than $10K/ounce if currencies were 100% backed by gold. I don’t invest in gold, I have always thought that income property is the best investment for common people like myself. Rikard has a different opinion and thinks people should own gold in their portfolio (like 5% gold). I don’t understand the gold market, while income property is easier to understand.
jonex 7y ago
In this case I interpret "backed by" as that the central bank will give you the corresponding amount of gold for your currency. But, the opposite would not be true, they won't give you currency for gold alone, you'd have to also provide the same kind of backing as for non gold backed currency. So paid in gold or the currency, you'd get the same number of apples in each case. But if you'd convert the currency to gold via the central bank (rather than on the open market) you'd get 1/5 as many apples in the second case. In normal operations this won't make any difference, no one in their right mind would use the central bank rather than the open market to buy gold. But it means that the central bank can't just print money as they see fit, reducing the risk of runaway inflation. It also acts as insurance in the case of runaway inflation, you'll lose at most 80% of the value.
- erikpukinskis 7y ago
  In the case of Russia, does anyone really expect the central bank to “give you” gold in exchange for notes in a crisis? They’ll certainly exchange some amount of gold for something but I doubt it would be the face value of the notes.