Re: A fractional Reserve
How does the gold-backed currency help the economy? If we assume that all the gold in the world are accounted for (which it isnt) we can determine how much gold=1 (goldbacked) dollar. That dollar will buy you a certain amount of goods.
Over time there are more goods being produced, and more people are coming into society/economy, so more goods will be sold but the amount of money stay constant. So if 1kg gold=1 car now, over time more cars are in the market, and cars have to be sold for 1/2 kg of gold, or else there will not be enough gold or cars for everyone wanting to buy a car. The price of gold will rise, wages have to go down or stay constant, and the money supply per capita declines every day.
I might be very wrong here, but thats my understanding of how a gold-backed currency would work. How is this profitable for the economy? If Im sadly mistaking please correct me in a manner that does not make me seem like an idiot (thats my job).
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