If you haven’t heard yet, the committee which is drafting the platform for next week’s US Republican National Convention has announced that they are including a proposal to return to the gold standard. Big news.
Ironic… given that it was a Republican president (Richard Nixon) who abolished the gold standard in the 1970s. Regardless, it’s nice to see the issue thrust into the spotlight. But does it stand a chance of actually becoming a reality?
Let’s look at some numbers.
Remember, a gold standard is a monetary system in which individual currency units are fixed to an amount of gold held by the government; under a gold standard, the paper money supply cannot be expanded without also increasing the amount of gold on hand.
With a full gold standard, 100% of the money supply is backed by gold. In practice, a smaller amount of gold may be fixed to back the money supply.
According to the World Gold Council, all the gold that has ever been mined in the world is now valued at roughly $10 trillion. This is essentially the same number as the current M2 money supply in the United States.
In other words, to fully back its existing money supply, the US government would have to control every ounce of gold that has ever been mined in the history of the world.