We are moving toward a cashless society and economy, and the signs are everywhere. The only greenbacks one sees now are either in the concession stalls at football games or the “decoy” note in every wallet to keep potential muggers happy.
However, if a group of like-minded people in Asia has its way, the entire world will soon be trading in gold and silver coins instead of dollars and Euro. A recent article in the Wall Street Journal said that in the Kelantan state of Malaysia, the local government has taken steps toward an alternate currency by issuing Islamic-style gold dinar coins that will be accepted in lieu of the Ringgit, Malaysia’s official currency.
The introduction of this currency is influenced by more than just plain economics, as it has been advanced as an alternative to the U.S. dollar and its dominance of world markets, and heralded as recourse for those that do not agree with American foreign and military policies.
However, the main argument that the proponents of this idea put forward is that it is unfair to trade with currencies that are not tied to a specific commodity standard like gold or silver, because the governments controlling those currencies can simply print more currency — with financial backing — to pay for goods.
This is certainly true of the U.S. dollar, which was taken off the gold standard by Richard Nixon in 1971, partly due to the enormous expenditure caused by the Vietnam War.
The alternative proposal is to either switch to a currency system backed by a standard, or to deal entirely in that standard instead. One of the most prominent backers is Republican Congressman Ron Paul, who supports the reintroduction of the gold standard to protect savings and to guard against runaway inflation.
The dangers of printing money without anything to back it have been aptly demonstrated in the past, notably in Germany before the World War II, when the nearly worthless Deutsch Marks were transported around in wheelbarrows.
Even today, Somaliland and Zimbabwe have currencies pegged at astonishingly low rates with respect to the dollar. A single U.S. dollar could fetch up to 17,000 Somaliland shillings, and it was common until 2009 for billions of Zimbabwean dollars to exchange hands for a transaction as simple as buying a newspaper.
Though switching to a standard like gold might seem like the answer to these woes, it isn’t at all obvious that this will do anything but introduce a temporary fix. Gold and silver are just as inequitably distributed around the world as oil or any other natural resource, and hence a standard that relies on these commodities will at some point put to disadvantage smaller countries that possess limited or no access to such resources.
The world’s economies are shaken and only just pulling out from the brink of a spectacular collapse. This is as good a time as any to come up with a solution to the currency conundrum once and for all.
Kartik suggests we all switch to the barter system. Mail him some live chickens at kartikt@asu.edu.
