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The currency needs to be stable enough relative to the world to be conducive to trade goods.
Gold cannot. Profit swing can be quite damaging considering volatility of Gold.

Can you imagine all the bonds are somehow denominated or traded in usd if they defaulted by changing the system won't there be a run on all the bonds? And I hear alot of these bonds are used collateral to backstop up to 220 trillion worth of derivatives trades, if this collateral becomes worthless overnight everything will crash. Is unthinkable

All the gold bugs think this will be a perfect storm if it happen but I think the reverse will happen because many institutions have a lot of money in bonds markets will start pulling trades off the precious metals market or shorting it to make up losses from bond markets.

I'm also inclined to agree with yeokiwi that there is not enuf gold to backstop all the assets in the world.

I don't believe that gold should back all assets in the world.

Assuming somehow, gold, at a moment, back all assets in the world. You provide a service or a new product and at the same time, no one dig out any new gold, does that mean, the service or product you provided does not have a value? or all the other asset should decrease in value to match the amount of gold in the world?

I do not think backing of asset need to be all or none.

(10-08-2012, 01:08 PM)corydorus Wrote: [ -> ]I do not think backing of asset need to be all or none.

This is even more difficult to implement. We need a valuation agency to value the asset and then the same ugly over-valuation scenario will happen again.

The current fiat currency works well since the government is obliged to honour the debts and at the same time, the government collects taxes from citizens and corporations to either pay back the debts or pay interest to the debts.

The fiat currency will fail when the government is incapable of honouring the debts. In such case, it is the same as company default. The people that are holding on to the currency will lose all or part of the purchasing power.
In the case of the company, the stock holds by the stockholders will either be worthless or suffer a big hair cut.

Unlike in the case of a company default, there is little or no recourse for the investors that invest in the country debts.

Greece default is a special case since its currency is shared by many countries.
Greece is just liked a failed subsidiary in a big corporation. The corporation share price will drop(Euro currency exchange rate suffers) and the corporation can either writeoff the subsidiary(kick Greece out) or continue to supply money and asks the subsidiary(Greece) to cut cost(which is what they are doing now..).

Ok wat.. What's wrong with Fiat Currency??

Extract:-
Articles

Why Gold is the Standard for Currency?

Perhaps you know that gold is the standard for currency, but you really have no idea what that means. You’re not alone. Not all of us are financial gurus. Gold has been used as a form of money for thousands of years. In fact, it is among the oldest forms of money in the world. The gold standard is a money system where the money that is being circulated, like a paper bill or bank note, have a value that is directly linked to gold that is stored away somewhere. The currency in circulation in this type of system is fixed to the price of the gold that is in storage. This allows for a currency exchange that is predictable. The other type of money system is called a fiat currency system. In the fiat system, central banks can increase or decrease the supply of money without having the gold in their coffers to back it up. The U.S. operates currently on the fiat system, but it wasn’t always that way.

Gold Standard System History

When you hear the term ‘gold standard’, you are likely hearing about the International Gold Standard. This was established in the late 1800s after a silver crisis in England which ended with the U.S. suspending all silver payments. In 1871, the first gold standard was established by Germany, and within three decades, nearly all countries with big economies had established similar systems.

With the onset of the First World War, the gold standard reached an initial crisis. Britain had moved from a gold standard to a fiat standard, due to the huge cost that was involved in fighting the war. With the Treaty of Versailles, which set conditions for Germany’s surrender, Germany was forced to turn over (as reparations), the bulk of its gold supply to the winning countries. This left Germany without enough gold to maintain the gold standard, thus giving them no other option than to switch to a fiat currency system.

Abandonment of the Gold Standard

The U.S. and most other major economies abandoned the gold standard by the mid Twenties. The official demise of the gold standard came in 1933 when those nations using the gold standard failed to come to an agreement on the value of gold. Following WWII, the Bretton Woods Agreement would govern the value of currency, until 1972, when the free floating currency era began. Gold lost its status as the basis for reserve accounting for central banks.

Problems with the Gold Standard

The gold standard, initially, allowed for the expansion of trade around the world, but it was problematic. Gold supplies grew much more slowly than the global economy, which made the gold standard highly deflationary. For example, in the U.S., periods of deflation that lasted for as long as fourteen years were seen when the economy switched to the gold standard. It is also possible, with the gold standard, for local distortions of value to be realized. Such was the case when the Irish found it more profitable to export potatoes to England rather selling them domestically, which led to what became known as the Great Potato Famine.

Lastly, it is important to note that the gold standard does not allow the government to print money out without having gold to back it up. This can leave the public prone to recessions and depressions. The current fiat system is based on trust, but that allows it to combat depressions as well as unemployment. The gold standard did not allow for that.

Unextract:-
Question:

How to value GOLD with fiat currencies now since there is no more "GOLD STANDARD"?
Why in a way people still treasure GOLD more than fiat currencies?
Especially in some countries, when their currencies are not "internationalised".

If fiat money system fails what's next?
No! Surely not "GOLD STANDARD" again.
The world has globalised and it's economy has expended so many times; when we didn't have enough gold to back up the much smaller economy in the past how can we have enough gold now?

Nevertheless, in time of calamity, war, disaster,...etc... Gold is usually more valuable or effective to get you out of troubles.
So keep some "lose change of gold".
You will never know, you may need to use it in your life time.
But, hopefully don't need to - just like "life insurance".

Quote:Nevertheless, in time of calamity, war, disaster,...etc... Gold is usually more valuable or effective to get you out of troubles.
So keep some "lose change of gold".
You will never know, you may need to use it in your life time.
But, hopefully don't need to - just like "life insurance".TongueBig Grin

In time of war there is really no need to hoard gold just imagine if you live in ang mo kio the population reduced to just 5,000 survivors, if you are the sole survivor in your whole hdb block whats left of it, everything around you is yours, all the food in your neighbors fridges, their rolex watches the women's jewellery maybe even their multi-vitamin are all yours .. having a bar of gold for insurance really quite useless at this point unless you are on the run. In which case I rather keep diamonds and precious stones as they are smaller, lighter and more easily concealable.

(11-08-2012, 09:06 AM)sgd Wrote: [ -> ]

Quote:Nevertheless, in time of calamity, war, disaster,...etc... Gold is usually more valuable or effective to get you out of troubles.
So keep some "lose change of gold".
You will never know, you may need to use it in your life time.
But, hopefully don't need to - just like "life insurance".TongueBig Grin

In time of war there is really no need to hoard gold just imagine if you live in ang mo kio the population reduced to just 5,000 survivors, if you are the sole survivor in your whole hdb block whats left of it, everything around you is yours, all the food in your neighbors fridges, their rolex watches the women's jewellery maybe even their multi-vitamin are all yours .. having a bar of gold for insurance really quite useless at this point unless you are on the run. In which case I rather keep diamonds and precious stones as they are smaller, lighter and more easily concealable.

Go talk to old people who survive in WW2 in singapore or china on Gold.
Till today old people still hide some gold somewhere for reason they have actually experienced themselves.

(11-08-2012, 10:19 AM)corydorus Wrote: [ -> ]

(11-08-2012, 09:06 AM)sgd Wrote: [ -> ]

Quote:Nevertheless, in time of calamity, war, disaster,...etc... Gold is usually more valuable or effective to get you out of troubles.
So keep some "lose change of gold".
You will never know, you may need to use it in your life time.
But, hopefully don't need to - just like "life insurance".TongueBig Grin

In time of war there is really no need to hoard gold just imagine if you live in ang mo kio the population reduced to just 5,000 survivors, if you are the sole survivor in your whole hdb block whats left of it, everything around you is yours, all the food in your neighbors fridges, their rolex watches the women's jewellery maybe even their multi-vitamin are all yours .. having a bar of gold for insurance really quite useless at this point unless you are on the run. In which case I rather keep diamonds and precious stones as they are smaller, lighter and more easily concealable.

Go talk to old people who survive in WW2 in singapore or china on Gold.
Till today old people still hide some gold somewhere for reason they have actually experienced themselves.

No need to go so far, just go and talk to the Vietnam's ethnic Chinese refugees how they got out of Vietnam by boats during the short war between Vietnam and China.
And when i went there to work, Gold was NO 1 not any fiat money. i believe it's the same until today in Vietnam.
Why?

It be good to have some % of your asset in gold/silver.(not in paper contract)
I do have 1.5 kgs of gold and 500pcs of silver coins.
When war comes ,paper money is worthless...
Another way is to have asset/deposit in many countries but useless if there is a world war also..