For millennia, gold has possessed an intrinsic value for human civilizations. Mesopotamians used it as jewelry, the Egyptians used it to honor the dead, and the Romans built temples with it. By 600 BC, this value began transitioning into currency, as a way to replace bartering and establish a more formal system of exchange.
But why gold? It’s malleable, durable, has appealing physical properties, and is long-lasting. Gold is one of the most historically consistent assets a person can own and has been a reliable form of payment until today.
Here’s the story of how gold has been used as money throughout the ages.
The first gold coins
Before gold coins, traders would use gold nuggets and compare their weight to the value of the goods being bought. It wasn’t until around 600 BC that the first gold coin currency was created (mixed with silver) in the kingdom of Lydia – now Turkey – which at the time had the largest gold wealth. The value of the coins was directly correlated to the amount of gold in them and was introduced in the hope of improving trade in the country.
When Lydia was invaded by Persians, they too adopted the practice of using gold as currency.
The golden European years
Multiple groups began using gold as money in the centuries that followed, and when colonizers began voyaging to the Americas in the 15th century, the search for the metal became a European obsession. The Americas were home to rich gold deposits, and countries like Spain, England, and Portugal sent explorers to bring it back to Europe where it would become the basis of their economies.
By the 17th century, England started setting up goldsmith bankers, where people would store their gold. By the 17th century, these bankers would give people ‘running cash notes‘ as a type of receipt when they deposited their gold. The note was essentially a promise to pay the depositor their gold on demand and was an indication of the eventual move toward using paper money in Europe.
But the development of paper bills did not actually replace gold’s role as money, instead, it eventually led to the gold standard in the 1800s.
The gold standard
With gold from the Americas and a boom in domestic trade, England had large stockpiles of gold (which still exist today and are known as ‘gold reserves’) that could be used as a basis to assign value to new paper money. In 1821, England became the first country to officially embrace the gold standard, which meant people could obtain a fixed amount of physical gold for paper money in a ‘like-kind’ exchange.
By 1900, the majority of developed countries had followed suit. For a while, the relatively calm global political conditions meant the gold standard worked well. However, when World War I broke out in 1914, confidence in the system dramatically dropped.
The collapse of the international gold standard
Slowing economies combined with the 1929 stock market crash led to people hoarding gold as a safety net, depleting government reserves. Governments increased interest rates to make currencies more valuable but this caused companies to go bankrupt and unemployment to soar. It soon became apparent that the world needed a more flexible model to base the value of money on.
Great Britain was the first to leave the gold standard in 1931, and other countries soon followed. President Franklin Roosevelt took the United States out of the gold standard in 1933, prohibiting the exchange of dollars for gold for regular citizens.
The Bretton Woods system
Following World War II and the subsequent economic instability, a new international system was required. Because the United States held three-quarters of the world’s supply of gold at this point, the Bretton Woods Conference in 1944 agreed that the US dollar would be fixed to gold at $35 per ounce, while other currencies had fixed but adjustable rates to the US dollar. At its core, the Bretton Woods Conference established that currencies would be backed by US dollars, and only the US dollar backed by gold.
But by the 1970s, there were too many dollars in circulation worldwide, the value of the dollar was falling as inflation rose back home, and foreign countries began to redeem their dollars for gold. This risked depleting US gold reserves unsustainably, and in 1971, the Bretton Woods system came to an end and the dollar and gold connection was cut. Without controls, the price of gold shot up on the free market.
Today’s global economic system predominantly uses ‘fiat currencies’ like the euro, US dollar, and yen: government-authorized forms of money that are not backed by a commodity. The separation between gold and money has proven to be comparatively beneficial for gold prices, which tend to rise as currencies fluctuate – something that happens to all currencies, all the time. For example, during the COVID-19 pandemic – when many world currencies reached an all-time low – gold peaked at $1,769 per ounce in April 2020, the highest point in almost seven years. It is also forecast to reach record highs by 2021.
Gold is therefore considered as a reliable asset to own, and many people purchase gold to protect themselves from economic uncertainty and improve their financial security on a long-term basis. People often invest in gold bars and coins, gold-backed exchange-traded funds (ETFs), and gold mine stocks.
But gold’s value in day-to-day monetary transactions is still as true as ever. New fintech solutions such as Coro are making gold accessible for regular people to use as money as easily as other fiat currencies. Gold can now be bought digitally, exchanged, and used in payments, without the need for financial or investment expertise.