Monetary Revolution: The Fed Considers Ditching Fiat Currency For Gold
Is the U.S. on the Verge of Adopting a Beneficial Financial System Reset?
An unbelievable financial report was recently released outlining mathematically modeled scenarios for moving from Fiat to Gold financial systems.
I couldn’t believe my eyes when I read this Philadelphia Federal Reserve Bank’s February 2024 analysis and Working Paper.
The Fed, a principal overlord of modern fiat debt currency finance, is seriously contemplating a move that seems straight out of history books: bringing back a gold-backed currency for the United States and the global financial system.
How does an economy behave in a historical environment where gold is the international monetary standard? We find that key features of this monetary system are long-run price stability and the nonneutrality of money in the short run.
The Philadelphia Federal Reserve Bank Working Paper. February 2024
This isn’t a drill or a speculative thought experiment.
Given the dire predictions for our current fiat currency system, which is not backed by physical commodities and is on a crash course toward certain failure, this old-school idea suddenly makes all the sense in the world.
About the Philadelphia FED’s Surprising Working Paper
In a groundbreaking analysis released by the Philadelphia Federal Reserve Bank in February 2024, a compelling case is made for a significant pivot in the United States’ monetary strategy: the return to a gold-backed currency system.
This detailed examination, rooted in meticulously crafted economic modeling and historical insights, raises critical questions about the sustainability of the current fiat currency system.
The Federal Reserve’s exploration into this territory is not merely an academic exercise but a profound indication of the serious considerations at play to avert a financial system collapse that everyone knows is “mathematically certain and inescapable.”
The study, while complex, digs deeply into the foundational principles of the gold standard, underlining how such a system historically ensured long-term price stability and economic equilibrium.
In essence, the gold standard acts as a self-regulating mechanism for the money supply, linking the issuance of currency directly to gold reserves. This link curtails the propensity for unchecked money printing, a critical flaw in fiat systems that often leads to inflation or worse, hyperinflation.
Understanding the Gold Standard
Allow me to break down what this all means.
The gold standard is a monetary system where a country’s currency has a direct link to gold. So, if you have paper money notes, you can exchange it for a certain amount of gold.
Historically, this system kept economies stable because it prevented governments from printing money willy-nilly, which can lead to inflation or even hyperinflation.
The Fed’s report points out that with a gold standard, we’d likely see a more stable long-term economy, with fewer sudden spikes or drops in prices.
Why This Matters Now
You might wonder, why consider this now? The Fed’s analysis shines a light on three big reasons:
- Long-term Price Stability: Gold ties the hands of those who print money, ensuring that over time, prices don’t wildly fluctuate. Think of it as a financial thermostat that keeps the economy at a comfortable temperature.
- Money That Means Something: Right now, if the economy starts to falter, the government can just decide to print more money. Under a gold standard, this wouldn’t be as easy. Money would have real value tied to something physical, and as a result, its impact on the economy would be more predictable and steady.
- Protection from Economic Storms: The world economy is a complex web of trade and investment. The Fed believes that linking money to gold could act as a buffer against sudden shocks from abroad that can send our economy into a tailspin.
The Challenge Ahead
However, don’t think transitioning back to gold would be easy. It would require a delicate restructuring of international trade, balancing how much gold comes in and goes out of the country.
The Fed’s report is clear-eyed about these challenges. It talks about the need for careful policy planning and international cooperation to manage these complex dynamics effectively.
The very fact that the Fed is even considering this move is a wake-up call. It signals a profound concern about the sustainability of our current financial system.
This isn’t about looking backward with nostalgia. It’s suggests a forward-thinking strategy aimed at preventing a total economic collapse.
View the FED’s working papers in full here:
