A gold peg is all you need.Submitted by Warren_et on Tue, 03/02/2010 - 23:04
There need not be ANY gold or other PM in your currency system as long as the value of gold/PM is known.
You peg your paper currency to the value of the metal and it will work just fine.
Nathan Lewis wrote a book called "Gold: The Once and Future Money" which spells this out.
The below are essays from his blog at
So we need not worry about who has it and where it is. People could hoard it, banksters could hide it but as long as there is a value you can have a well functioning gold monetary system.
The problem with paper money isn't what it's made of, it's who issues it. This government, any government, with a monopoly on issue or protected by legal tender laws or both has no real reason to maintain the integrity of the money they produce. In fact the people in government often benefit from debasement.
In the productive sector, however, things would be different.
With competing currencies a person could switch from one to some other if the first one showed weakness. This competition will keep the currency healthy in general by defeating poorly managed products.
Of course if people want to pass metal around that is their right, the same as if they will only bank with a 100% reserve institution. There are many, myself included, that prefer paper money as being easier to handle and carry about and do not get worked up about fractional reserve banking. As long as I can take my bills to a gold seller and exchange paper for gold at par (minus whatever tiny percent the dealer takes as commission) I have a gold backed currency.
And that's all you need.