Demonetization of gold is when gold ceases to be or is no longer used as a means of payment. This process is natural, since many of the properties of gold, which previously gave it significance, have become uncomfortable for many. Gold has not ceased to be highly valued, but it has lost its former meaning.
An early stage in the development of commodity-money relations. The first use of gold as money
The exchange of labor products existed in primitive times. Neighboring tribes exchanged surplus products, but such an exchange was not always equivalent. It took more time, labor and resources to produce some goods than others. The tribes somehow tried to agree on the proportions of the exchange, but another situation appeared - the formation of surpluses of the purchased product. Everything changed when people mastered metal smelting.
The first mastered metal was gold. It was easier to find - pieces of gold in the river or in the cave were immediately visible. It was not necessary to possess exceptional knowledge of its processing or to dig deep to find. Today it sounds wild, but gold was used to make household items, tools and weapons.
From gold made tips on the teeth of plows, knives, swords, cups, jewelry. It was used everywhere, and there was always a need for it. Then people learned to mine and use other metals, but the habit of paying with gold remained. It was convenient: gold did not rust, did not lose its luster, it could be divided. In addition, deposits of copper, tin, silver or iron were not everywhere, and gold by that time was ubiquitous. For payment we used both finished products and ingots. The main measure of value was the weight of the metal.
The appearance of coins
The first gold coins appeared in ancient Rome. They were minted in the backyard of the temple of the goddess of trust - Coins, hence the name. Its weight was minted on one side of the product, and the emperor's face in profile on the other. Along with money circulation, barter was also widespread at the same time. Barter is the exchange of goods for goods. But it was not the demonetization of gold. It was simply that there was little gold already then, and besides, money circulation was still in its infancy. It was easier for the poor to exchange a thing for a thing than to exchange it for money first (a person with money still needs to be found), and then buy the goods he needed for money.
Middle Ages, the appearance of bills
Gold was most widely used as a means of payment in the Middle Ages. Any more or less self-respecting monarch considered it his duty to mint his own coin. However, the affairs of the autocrats did not always go well, and many of them “spoiled” their coins, reducing their weight. Not only kings and lords were engaged in spoiling a gold coin. Merchants and money changers also contributed. The coins were cut into pieces, they were erased, they were melted and re-minted. But this was not the reason for the demonetization of gold.
In the Middle Ages, the danger of losing gold coins and bullion during their transportation was higher than getting a damaged coin. On the roads were robbers and knights. Carrying gold was dangerous. Merchants and the first bankers came up with a new way to make payment without transporting coins - a bill of exchange. A bill of exchange is a payment order giving its holder the right to receive gold coins from a particular person. Soon, bills began to be used along with coins. In fact, the bill was a gold-backed security. That bill became the prototype of the first paper money - banknotes.
Manufacture growth
With the development of production, manufactories and the first factories began to produce more goods, and mainly mass consumption. Gold mining did not keep up with the overall growth, a sharp need for replacement was formed, as the resulting cash shortage hindered economic development. An increase in production and an increase in commodity circulation is one of the main reasons why the demonetization of gold took place.
The advent of paper money
In parallel, there was circulation of bills, and then banknotes appeared. A banknote is a security issued by a bank against gold security. The bank was obliged to conduct an exchange at the first request. Initially, the rate was set one to one, but soon, due to excessive abuse of the printing press, the rate of paper money began to decline. There were calls to return everything back, as it was, but no one was ready to return to the previous level of production and consumption.
The Industrial Revolution and the Gold Standard
The industrial revolution led to an increase in labor productivity and cheaper goods. There are more goods, they have become more diverse and, no less important, more affordable even for the lowest layers of society. There was an urgent need for large amounts of cash, but their output should be normalized so as not to lead to their complete depreciation. Thus, a new function of gold appeared, in exchange for the lost to others. Gold coins ceased to be a medium of circulation, but became a means of support and a factor restraining the uncontrolled issue of banknotes.
The gold standard became widespread at the end of the 19th century. By that time, gold was used in international payments as a standard of value, less often as a means of payment. Although it was transported by train or ship, the transportation of gold was more likely the exception than the rule. If it was possible to get by with a check or a bill of exchange, they were used. Gold coins and bullion were transported only in exceptional cases.
The Consequences of Two World Wars for Gold Conversion
The strongest blow to the Gold Standard was dealt by the First and Second World Wars. The gradual process of the loss of gold of its monetary functions became inevitable, given the fact that the participating countries lost their gold and currency reserves. By the end of World War II, there were practically no gold reserves or any gold reserves in Europe at all. The United States, the country most endowed with gold reserves at that time, took an unprecedented step by providing assistance to European countries in exchange for some privileges. In the summer of 1944, the Bretton Woods Agreement was signed, according to which the dollar became the world currency. He was tied to gold at a fixed rate of $ 31 per ounce (approximately 31.1 grams). It was possible to exchange dollars for precious metal upon request.
However, this state of affairs did not suit everyone. France was the first country to decide to return gold back to Europe. Charles de Gaulle sent a plane loaded with $ 1.5 billion to buy gold to the United States. Following France, Germany decided to return its gold, but did not have time. The US leadership urgently held a conference in Jamaica in the summer of 1976, following its results, the Bretton Woods agreement was canceled and a new one was adopted, according to which the US dollar was not tightly linked to gold. Other currencies were also recommended to go "free swimming".
Our days
Was the process of gold demonetization completed or not? Nowadays, this question can be safely answered in the affirmative. And although the IMF does not prohibit international payments in gold coins and bullion, precious metals are practically not used in international payments. Gold is considered as an object for long-term investment or speculation, and not as a means of payment. Gold and gold coins do not go as freely as several centuries ago. They are not accepted in settlements between individuals and legal entities. However, this does not mean that precious metals are used only for the manufacture of jewelry.
Gold bullion and gold coins can be purchased at Sberbank branches (not all). Any citizen can open a metal bank account. For those who want to invest in a reliable asset and for a long time, gold is one of the most convenient tools. Sberbank publishes gold quotes along with dollar and euro quotes.
Stock Exchange
Gold is one of the most curious tools on the stock exchange. On the one hand, it is a separate product, on the other, its relationship with the currencies of different countries, and especially with the dollar, is obvious. When investors are not sure about the US dollar, they transfer money to gold, and vice versa. Gold does not lose its value over time, which can be verified by looking at Sberbank gold quotes.
National banks put surpluses of precious metals in special storage facilities. These reserves are treasures, on the one hand they make it possible to maintain a high rate of precious metal, on the other hand, they can be used as a “safety cushion” if it is necessary to maintain the national currency.
