What if a Country go back to Gold (bitcoin) standard?

[camponez]

Does anyone have an idea on what happen if a country decide to go back to a Gold standard?

Imagine that there is no threat to this country come from the others. It's a middle sized economy.

Its economy would become strong. It would not be able to inflate there currency for obvious reason.

What are the pros and cons? A fly solo like this is even possible/imaginable?

I'm just curious to know what you guys think it might happens.

[spazzdla]

America would instantly refuse to trade with them and force everyone they could to do the same utterly destroying the country.

[camponez]

America would instantly refuse to trade with them and force everyone they could to do the same utterly destroying the country.

What if it does not happen?

I'd like the views from a economic point of view.

[painlord2k]

Depend on the size of the country.
If it is a medium sized country, like Switzerland, with a 534,500,000,000.00 M1 (in USD). Currently they have around 10% of that value in gold (53 billions over 530 billions). This is 1430 metric tons of gold.
They should buy 12.9 K tons of gold to back their currency in full at current prices of $37.5/gram.
Current global production is around 1000-1200 ton/year.

The referendum of November 30th, 2014, if passed, will force them to back the currency moving from the current 9% to 20% in five years. 1.3 KTon in 5 years or 260 tons per year.

But I digress. What would happen if they had a fully backed currency.
What did happen to Germany when they had the Deutsche Mark?
Their import/export balance would immediately go to zero. They would be forced to export as much as they import.
If imports would exceed exports gold would be exported and people would have less gold to pay for imports. Given people WANT and NEED savings at certain levels before increasing consumption/investments, as the saving go down consumptions go down. Credit inside the country (in gold) would reduce to exactly the quantity of savings in existence or less. So bubbles would be impossible to form and grow and after a few years unheard. Banks lending would reduce drastically 5 to 10 times the current levels and bank reserves would go up from 5% to 20-50% or more (because there would not be a central bank able to print gold for them). Interest rates would grow in the 5 to 10, event 20% per year (depending of conditions)

On the other side, prices of goods would collapse with the collapse of credit, so people would be able to pay cash for a house and save in a few year to buy a house with minimum need of credit. Instead of 30 year mortgage loans, people would save for three years and buy a house with a loan they would repay in other three years. Or they would save for five year and pay the house in full.

They would be forced to back up every government expense with taxes and with minimal credit. Because, if the loaners must give them gold and the government must give them back more gold, people must take in account how much gold exist to do the repayment and where they would take it, if they are able to take it.
People would be force (it is a good thing) to take care of their own saving account. With gold it is easy. Just put some coins away consistently.
The falling prices would allow people to leave cheaper and debt free. But they would NEED to work. No make-believe jobs from the government or mandated by the government or subsides for fake jobs and a lot of government employees pushing paper and fining people.

[camponez]

Depend on the size of the country.
......

Thank you for this. Very helpfull.

[twiifm]

Does anyone have an idea on what happen if a country decide to go back to a Gold standard?

Imagine that there is no threat to this country come from the others. It's a middle sized economy.

Its economy would become strong. It would not be able to inflate there currency for obvious reason.

What are the pros and cons? A fly solo like this is even possible/imaginable?

I'm just curious to know what you guys think it might happens.

Read what happened when England went back to Gold Standard in 1925.  Results werent good and they went off it in 1931

[misterpressman]

Bitcoin gambling sites will close for sure. Maybe that will happen if internet suffers a big crash and it will not be used ever again.

[camponez]

Does anyone have an idea on what happen if a country decide to go back to a Gold standard?

Imagine that there is no threat to this country come from the others. It's a middle sized economy.

Its economy would become strong. It would not be able to inflate there currency for obvious reason.

What are the pros and cons? A fly solo like this is even possible/imaginable?

I'm just curious to know what you guys think it might happens.

Read what happened when England went back to Gold Standard in 1925.  Results werent good and they went off it in 1931

I don't think the same apply. We are much more global now. The effects could be better or worse.

[ClownHunter]

America would instantly refuse to trade with them and force everyone they could to do the same utterly destroying the country.

Gaddafi, and Saddam Hussein both wanted to introduce currencies backed by gold. This whole oil for gold movement, is why both of these guys were murdered by the US state, why their countries were invaded and looted for their entire Gold reserves.

In short the powers that be don't want this to happen and will go to the furthest extent to prevent it

[arbitrage001]

Does anyone have an idea on what happen if a country decide to go back to a Gold standard?

Imagine that there is no threat to this country come from the others. It's a middle sized economy.

Its economy would become strong. It would not be able to inflate there currency for obvious reason.

What are the pros and cons? A fly solo like this is even possible/imaginable?

I'm just curious to know what you guys think it might happens.

Russia and China already accumulated a lot of gold. Any deal between these two countries will probably be backed by gold.

[camponez]

Does anyone have an idea on what happen if a country decide to go back to a Gold standard?

Imagine that there is no threat to this country come from the others. It's a middle sized economy.

Its economy would become strong. It would not be able to inflate there currency for obvious reason.

What are the pros and cons? A fly solo like this is even possible/imaginable?

I'm just curious to know what you guys think it might happens.

Russia and China already accumulated a lot of gold. Any deal between these two countries will probably be backed by gold.

I'd like to see that happen...

[twiifm]

Does anyone have an idea on what happen if a country decide to go back to a Gold standard?

Imagine that there is no threat to this country come from the others. It's a middle sized economy.

Its economy would become strong. It would not be able to inflate there currency for obvious reason.

What are the pros and cons? A fly solo like this is even possible/imaginable?

I'm just curious to know what you guys think it might happens.

Read what happened when England went back to Gold Standard in 1925.  Results werent good and they went off it in 1931

I don't think the same apply. We are much more global now. The effects could be better or worse.

What's the reason to use gold standard?  Historically, countries went off gold standard because there wasn't enough gold to back the monetary demand.

What would probably happen is that boom & bust cycles would be extreme and you get things like Great Depression

[painlord2k]

Read what happened when England went back to Gold Standard in 1925.  Results werent good and they went off it in 1931

I don't think the same apply. We are much more global now. The effects could be better or worse.

What's the reason to use gold standard?  Historically, countries went off gold standard because there wasn't enough gold to back the monetary demand.

What would probably happen is that boom & bust cycles would be extreme and you get things like Great Depression

England returned to the gold standard with the same exchange rate the pound had BEFORE the war. Unfortunately, to pay the costs of the war, England printed four times that quantity of notes.
This caused inflation and, obviously, who understand the situation converted as many notes as he could in gold and waited the endgame.

Countries went off the Gold Standard because there was not enough Gold to back the government expenditures and promises.
So, instead of cutting expenses, they printed fiat money. Easier, someone else would pay the costs of their decision a few years or decades down the road. Who care?

Had they allowed the Great Depression to go unchecked, it would have ended by 1931. They had just to compensate for the easy money and inflation of credit of the Roaring '20s (thank you Federal Reserve).
Instead the socialist government of FDR (he told his secretary they were doing the same thing they were doing in Italy, Russia and Germany, but without bloodshed and chaos) decided to manage the economy and fix it. And instead of being a Depression it become the Great Depression. And today we have the Greater Depression because the US government (and all government of the world) think they can fix the economy (and have it doing their bidding).

[erre]

Does anyone have an idea on what happen if a country decide to go back to a Gold standard?

Imagine that there is no threat to this country come from the others. It's a middle sized economy.

Its economy would become strong. It would not be able to inflate there currency for obvious reason.

What are the pros and cons? A fly solo like this is even possible/imaginable?

I'm just curious to know what you guys think it might happens.

Read what happened when England went back to Gold Standard in 1925.  Results werent good and they went off it in 1931

I don't think the same apply. We are much more global now. The effects could be better or worse.

What's the reason to use gold standard?  Historically, countries went off gold standard because there wasn't enough gold to back the monetary demand.

What would probably happen is that boom & bust cycles would be extreme and you get things like Great Depression

Why you say so? You can divide 1g.of gold indefinitely, just as btc!

[camponez]

Does anyone have an idea on what happen if a country decide to go back to a Gold standard?

Imagine that there is no threat to this country come from the others. It's a middle sized economy.

Its economy would become strong. It would not be able to inflate there currency for obvious reason.

What are the pros and cons? A fly solo like this is even possible/imaginable?

I'm just curious to know what you guys think it might happens.

Read what happened when England went back to Gold Standard in 1925.  Results werent good and they went off it in 1931

I don't think the same apply. We are much more global now. The effects could be better or worse.

What's the reason to use gold standard?  Historically, countries went off gold standard because there wasn't enough gold to back the monetary demand.

What would probably happen is that boom & bust cycles would be extreme and you get things like Great Depression

Why you say so? You can divide 1g.of gold indefinitely, just as btc!

In theory yes. Nobody would use gold, but gold certificate instead. However, it would be difficult to get your gold back for very little amounts

[countryfree]

Just look at the size of the market that deals with commodities trading. Every single investor in the world would want a piece of the pie, and he will buy currency from that country. After only a few weeks, value of the currency would have tripled, or more, causing every company which was successfully exporting goods to go bankrupt, causing mass unemployment. The good part being that the people who had money in the bank would enjoy unprecedented purchasing power of cheap imported goods.

Still, in a very small country which would ban currency convertibility, I guess it could work.

[Nicolas Dorier]

Just look at the size of the market that deals with commodities trading. Every single investor in the world would want a piece of the pie, and he will buy currency from that country. After only a few weeks, value of the currency would have tripled, or more, causing every company which was successfully exporting goods to go bankrupt, causing mass unemployment. The good part being that the people who had money in the bank would enjoy unprecedented purchasing power of cheap imported goods.

Still, in a very small country which would ban currency convertibility, I guess it could work.

Having more import than export is the path to wealth.

If you replace "the country" by "a familly", and "the resources of the country" by "house's furnitures".
Then, as a family, you would prefer a well furnished house (in other words goods imported in it), than an empty house.
Why is it not the same for a country ?

The goal is to have more import than export, without indebt ourselves.

Putting that aside.
The domestic industries also profit of strong currency, since they can buy more productive capacity cheaper.
If they can't sell it, the price of their good will drop until it does (that and the fact that supply goes up). Then buyer aboard will buy the goods, which will lower the value of the currency until equilibrium.

[doge94]

This idea is moot. There is not enough gold to sustain a gold standard at current economic output.

[Nicolas Dorier]

This idea is moot. There is not enough gold to sustain a gold standard at current economic output.

What does it mean "not enough gold" ?
Does it mean that the smallest gold coin price is too high to buy a cup of coffee ?

If that's your point, the problem is with divisibility.
So the question is : if that's the true problem, then does BTC is protected about that ?

I think yes, a Satoshi will never cost more than the price of a cup of coffee.
And if it was not the case, a protocol change with "MilliSatoshi" (or through a side chain), would permit unlimited divisibility.

[painlord2k]

Just look at the size of the market that deals with commodities trading. Every single investor in the world would want a piece of the pie, and he will buy currency from that country. After only a few weeks, value of the currency would have tripled, or more, causing every company which was successfully exporting goods to go bankrupt, causing mass unemployment. The good part being that the people who had money in the bank would enjoy unprecedented purchasing power of cheap imported goods.

Still, in a very small country which would ban currency convertibility, I guess it could work.

Having more import than export is the path to wealth.

If you replace "the country" by "a familly", and "the resources of the country" by "house's furnitures".
Then, as a family, you would prefer a well furnished house (in other words goods imported in it), than an empty house.
Why is it not the same for a country ?

The goal is to have more import than export, without indebt ourselves.

Putting that aside.
The domestic industries also profit of strong currency, since they can buy more productive capacity cheaper.
If they can't sell it, the price of their good will drop until it does (that and the fact that supply goes up). Then buyer aboard will buy the goods, which will lower the value of the currency until equilibrium.

You got nearly all right.
A country and a family want to import exactly as much as it export.
If you export more than you import, you depend on the solvability of the debtors.
If you import more than you export, you depend on your creditors not needing their money back all together earlier than you foresight.

When West Germany had his currency (hardest fiat around for a long time), all other countries needed to buy Marks to buy stuff from West German industries and West Germans found incredibly cheap to go and spend their Marks in countries with weaker currencies like Italy or Greece. In the end, the Import/Export balance of West Germany was always balanced. Do not appear they had any economic problem from having the strongest currency around. A lot of people went to work in Germany from other countries, because they had full employment and needed workers.

The interest rate would raise (a lot higher than the zero or 2% of today) and only very profitable enterprises would be able to get financed. Work intensive sectors (usually in cheap productions) usually have lower margins, so they would receive less investments or none at all where capital intensive sectors would receive more investments. People would save a lot and savers would receive very interesting returns if the lend part of their savings. So you would have people working in highly productive jobs, making more money, saving a lot more and being paid back for their saving loaned.

Bubbles would not form or would be one or two orders of magnitude smaller and rarer. Even better, with more savings, when these bubble would burst, people would not be so severely affected as today (because they would have a lot larger cushion). The economy would grow at a faster rate than today and would have no long recessions.

The only "problem" would be debtors and carefree lenders. The government would not be able to spend so much as it would like (as the politicians and bureaucrats would like). Higher rates of interest would force them to not be indebted and would turn the market against them when the indebtment would go over 20-30% and not 80-100% of the GDP. There would not be enough gold to lend the government so much money at all, in fact. The government would need to revert to taxation, but taxation make people angry and restive. Government would be forced to balance the budget, like it or not. Because it would be forced to pay people in gold coins and it would need to raise them first.