As Ernst and Luc said, a gold standard actually works.During the gold standard, prices over the long term were reasonably stable. In times of crisis, there was temporary deflation and during the periods of boom temporary inflation. The disadvantage of the gold standard for governments is the same disadvantage as that now the Euro has for a number of governments. It is not possible to put the money press on and/or make big debts. (It is also the reason why a country like Greece fell out of the gold standard)
Our current system of fiat money is based on debts and permanent inflation.The ECB strives for 2% inflation per year. The former central banks of Germany and the Netherlands had about a same target inflation. This means that prices have doubled every 35 years. The advantage is that it stimulates spending and stimulates the making of debts. Remember that a grace-free mortgage after a maturity of 30 years has also reduced almost half in value! This also applies to Governments that have a sovereign debt.
The disadvantage is that funds in Money (savings) also continuously decrease in value.This requires savers and pension funds to invest riskier than they might want.
Whether it is possible to return to a gold standard with a cover of 20 鈧?”40% (this cover was practice between 1870 and 1914) seems tricky to me.There is now not enough gold present to cover the current amount of chartal and scriptural money without the gold price rising very strongly. It does indicate that a large proportion of the circulating money is counterfeit money which mainly reflects debts. As long as the problem of debt mountain is not resolved, and solving is very complicated, banks ‘ crises like in 2008 will still often occur.
As Ernst-Otto Onnasch says, it does work.
The financial authorities do not want a gold-based currency to work.It has a lot to do with politics. Politics prefer to spend unbridged money. That’s not, so they make debts. The governments have so many debts that it is impossible to repay them in 鈧?艙sounding munt 鈧? Thus, inflation is being sought by creating money.
Inflation is making money increasingly less valuable.If that is slow enough, the ordinary man notices so little that he does not have it and continues to maintain confidence in the local currency.
This confidence is helped by systematically manipulating the price of the most important precious metals.The media also make a significant contribution by mentioning all sorts of negative statements about gold or at least nothing positive about it.
Then the ordinary man likes to buy government debts or leave his money on a savings account at the bank, not knowing what to do to the incessant purchasing power theft.
But the smarter people know the following proverb:
Gold is the money of kings, silver of nobles
Bartering is the money of farmers, debts the money of slaves.
Because gold is a very useful and unique toy. It has many applications in which it is irreplaceable. The electrical connections to chips in a computer for example are of gold.
It is idiot to spend a lot of money trying to mine such a useful material with great difficulty (and pollution) to bury it again as soon as possible in places like Ft. Knox.
At the time when it was still the currency base there was already not enough of the stuff to represent the whole value of the world economy.Now that problem is much and much bigger.
Reintroducing the gold standard would only lead to major disruption.
It DOES work!The period between the middle of the 19th century to WO1 was based on the gold medal. This was a period of sound economic growth with a hugely positive impact on general prosperity.
1 Practical Reason: Gold is a useful commodity, for e.g. medications and chips.A currency based on a thing that is 鈧?虄use is not stable. A currency works better if the 鈧?虄debt鈩?itself has little inherent value due to the raw materials it is made of. The double value presents a risk of theft and money laundering, e.g. A gold coin is simply to melt.