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#2412·Erik OrrjeOP, 7 days agoThe reason to back a currency with gold or some other commodity is that the commodity has other utility aside from being used as money. This sets a floor on the price, making it a store of value.
- Utility is not a necessary aspect of money. Only 5-10% of gold's value is tied to its industrial use (per chatgpt). This floor is not so reassuring then if the asset would plummet 90-95%. Other commodities, such as silver, have a greater industrial utility. That makes it less suitable as money since its value becomes tied to commodity cycles.
The reason to back a currency with gold or some other commodity is mainly due to its scarcity, which puts a limit on money creation (done through fractional reserve bankning).
The reason to back a currency with gold or some other commodity is that the commodity has other utility aside from being used as money. This sets a floor on the price, making it a store of value.
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