In a famous exchange between former Fed Chairman Ben Bernanke and Congressman Ron Paul, Bernanke was asked by Paul if he thought gold was money. Ben responded by saying that gold wasn’t money but a precious metal, and Congressman  Paul pointed out that the precious metal has been used as money for over 5,000 years. Below are some reasons why the Congressman is correct.

Gold’s Historic Monetary Role

Most people realize that the precious metal is frequently used in jewelry, but due to the advent of paper money, fewer understand its monetary value. In the past, many nations, including the United States, maintained a gold standard, which meant that the currency was backed by the precious metal and the paper notes could be redeemed for it. This ended by the 1970s, when the gold standard was eliminated worldwide in favor of a complete fiat currency mechanism.

Of the almost 200,000 gold tonnes which are situated above ground today, about fifty percent of it is used in the making of jewelry, ten percent is used for industrial purposes, and the other forty percent is used for investment. In ancient times, the precious metal was one of the most famous metals used for transactions among multiple civilizations, with its only real rival being silver. Gold was and is prized due to its beauty, durability, acid resistance, and the ease with which it can be transformed into coinage.

Why Gold Should Be Considered Money

Just because the world has abandoned the precious metal as a form of money doesn’t mean it shouldn’t be seen in this capacity. The key characteristic which makes it so is its immutability. Aristotle went further, highlighting four attributes which make material effective money, which is portability, divisibility, an intrinsic value and durability. Gold meets all this criteria, more so than paper money, crypto currencies, or even commodities such as oil. Gold doesn’t evaporate, it doesn’t tarnish, nor does it rot. It was here long before humans arrived and will remain after they’re gone. However, it begs an interesting question, which is: why would the Federal Reserve Chairman claim gold isn’t money?

Why The World Turned Its Back On Gold

Although the precious metal is still used in jewelry, electronics and for investment, few people around the world use it daily for transactions. Even when making a large purchase, such as a house, boat or car, most people around the world use regional currencies such as the Euro, Yen, Dollar or Peso. The reason for this is because governments around the world encourage the use of fiat currencies rather than precious metals for the payment of goods and services, as this currency is considered legal tender.

The second is because paper money, being easier to print, is far more abundant than the precious metal, which is harder and more costly to acquire. In Western nations such as the US, many large purchases are debt based, and gold, by its very nature, is an anti-debt instrument, as it is no one’s liability. However, history shows that ultimately, as was the case in both Zimbabwe and Venezuela, paper money will often fail.