Gold - All that Glitters is not Gold

Welcome back to bitesize Payments, where we explain their history, how they work and of course who does what. Today we’re diving into a topic that has fascinated civilizations for thousands of years: gold. 

Did you know that all the gold ever mined would fit into a cube just 21 meters on each side?

All that Glitters is not Gold – comes from Shakespeare don’t you know!! But it's history and role in Payments is Pivotal from a currency to the gold standard.

Perhaps you’re now thinking of Fort Knocks or James Bonds Gold’s Finger ohhh and try not to think of Spandau Ballet … ahh too late… here we go…

Payments Industry Insights

History of Payments

Payment System Explained

Corporate Payments Strategy

Payment Regulations Impact

ISO20022 Standard

Digital Payments Evolution

CBDC Advancements

Cryptocurrency in Payments

Financial Technology Education

Transcript

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Welcome back, dear listeners, to Bite Size Payments, where we explain the history, how they work, and of course, who does what. Today, we're diving into a topic that has literally fascinated civilizations for thousands and thousands of years. Gold. Did you know that all the gold ever mined would fit into a cube that's just 21 meters wide? So perhaps now you're thinking Fort Knox. or James Bond's Goldfinger. Try really hard not to think of Spandau Ballet. Oh, too late. Here we go. When I say gold, you may now start to think about wedding rings or jewellery. But from a payments point of view, gold has had a pivotal role in payments for a very long time. As a precious metal or as the gold standard to back currencies, it has quite a history. Gold has been a symbol of wealth and power for millennia. Ancient Egyptians, Greeks and Romans all used gold not only for ornamentation, but also as a form of currency. In fact, the use of gold as money dates back to 600 BC, when the Lydians in present-day Turkey minted the first gold coins as we discussed in episode 1. These coins became a standard for a medium of exchange, easily making trades happen and, frankly, a lot more efficiently. AU is the chemical symbol for gold. It comes from the Latin word aurorum, which means shining dawn because of its distinctive colour. Gold is classified as a noble metal due to its resistance to any form of corrosion and oxidation. So frankly, it stays shiny and does not tarnish. It's very malleable, making it ideal for crafting intricate jewellery and delicate objects. It's also one of the densest elements, making it heavy for its size. It's also an excellent conductor of electricity and is used in high-end hi-fi. We think of it as a precious metal, and approximately it's worth about$59 per gram. But frankly, rhodium is 14 times more expensive than that, so precious is one of those relative things, I guess. As I said in the introduction, there is about 21 cubic metres of gold, which, put it another way, is 244,000 cubic tonnes, which sounds like an awful lot to me, but as it turns out, not that much at all. From a payments point of view, our story begins in ancient civilisations. The Egyptians, the Greeks, the Romans all utilised gold as a form of currency. It wasn't just a commodity, it was a symbol of power and wealth and prosperity. The Romans, for instance, minted gold coins called auroras

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which facilitated trade across its vast empire. These coins were trusted and valued because of the intrinsic value of the worth of the gold. Now, we can talk a little bit more about that in a second. But effectively, these coins had value that was respected across a huge network, not just in the countries that they were, well, frankly, ruling over. But they were used then as currency by other countries. countries. Kind of a little like the dollar, if you will, as we discussed with Eric. Now, as we've discussed in previous episodes, coins that are made of precious metals, whether it be gold or it be silver or what have you, can become targets for fraudsters. They can be taken, they can be diluted, mixed with cheaper metals and so on and so forth. And of course, they become very very heavy so there's a kind of a problem here and gold only takes you so far in fact coins only take you so far at least we think of coins as or precious metal coins anyway are things of the past of course we still make memorial coins out of precious metals even today. And it wasn't that long ago that I can remember buying one of those little bars of gold to wear as a necklace. I must have been crazy at the time, but I did. And they're still around. So before we dismiss all these things about coins and gold and precious metals of the thing of the past, we have to remember we're still kind of using them a little bit right now. Let's now fast forward from the Middle Ages and see how gold took its next major turn in helping us in the payment industry. The introduction of the gold standard in the 19th century marked a significant development in monetary systems. Under the gold standard, the value of a country's currency was directly linked to a specific amount of gold. This provided a stable and predictable economic environment, fostering international trade and investment. The gold standard brought stability, but it also had its limitations. Countries adhering to the standard were constrained in their ability to print money, which limited their flexibility in responding to economic crises. However, the stability it provided was unmatched, making it the bedrock of international finance. for over a century. During World War I, many countries, including the United Kingdom, suspended the gold standard to literally print more money to finance the war effort. The UK returned to the gold standard in 1925. However, the Great Depression of the 1930s put immense pressure on economies worldwide. Fixed exchange rates and gold-backed currencies restricted the ability of those countries to respond to economic crises. So governments around the world needed a little bit more flexibility in how they responded and how they needed to change their monetary policies. They frankly needed a lot more flexibility than the gold standard could give them. The United Kingdom was the first major country to permanently abandon the gold standard on September 19, 1931. This was a political decision driven by severe economic challenges, including decline in exports, deflation, high unemployment, And frankly, it allowed the government, the UK government, to devalue the pound, stimulating exports by making British goods cheaper for foreign buyers and providing more flexibility, as we said, in the monetary policy. The UK's departure from the gold standard influenced other countries to reconsider their adherence to the system and to move to more fiat currencies, allowing more control of their monetary policy. By the end of the 1930s, most major economies had abandoned the gold standard. And the gold standard era really came to an end in the early 20th century, exacerbated by the economic turmoil of the Great Depression and, of course, World War II. The Bretton Woods Agreement in 1944 tried to maintain a semblance of the gold standard by pegging the US dollar to gold and other countries to the dollar. The system lasted until 1971. where, effectively, in 1971, the United States President Nixon announced a suspension of gold convertibility, leading to the modern era of everyone focusing in on fiat currencies. We discussed fiat currencies when we discussed CBDCs with Carol in episode 16. Fiat currencies are types of money that are issued by governments and are not backed by any physical commodity such as gold or silver. The value of fiat currency is derived primarily from its relationship between supply and demand and the stability of the issuing government rather than the value of the substance that backs it. While it doesn't seem such a big deal, in fact it is a very major issue. change in the way that we think about currency and of course the governments think about governmental monetary policies the truth of the matter is this is a pivotal step in the way we create money whether it's coins or it's paper effectively governments are saying whatever whatever whatever i confirm that this piece of paper, this coin, what have you, is worth a pound, a dollar, a euro, or whatever it is. And that's just because they say so. Now, of course, I think we all agree that we can trust governments. Clearly, some people don't. We kind of discussed that a little bit when we talked about crypto and when we were talking about CBDCs. But this debate will come back because of CBDCs and of crypto. And that is because, frankly, if you want to be inside of the system, then you trust governments and CBDCs will be their fiat currency of choice. I suspect moving forward, if you want to be outside of the system, then crypto is a way of doing it. And there is nothing backing the crypto. There's arguably nothing backing crypto. the pound or the dollar other than the government saying so. So literally, you pay your money and it takes your choice. I've been trying to work that line in for a long time, trust me. Even without the gold standard, gold plays a significant role in today's financial systems. Central banks hold vast reserves of gold as a hedge against inflation and economic uncertainty. Additionally, we're seeing innovations like gold-backed cryptocurrencies. These digital assets are pegged to gold, combining the stability of precious metals with the flexibility of digital currencies. When it comes to gold, several players dominate the market. Central banks are probably the most notable with their substantial gold reserves. When uncertainty hits the markets, gold is still a go-to investment. There are many gold traders and brokers who facilitate buying and selling, keeping the gold market dynamic. Most towns will have adverts for companies or shops buying and selling gold. While gold will remain and, frankly, continue to be a safe haven asset, its role, quite frankly, in the day-to-day payments world probably is very limited now. We may think of Fort Knox as the repository of gold. In fact, in the US, the Fed and the Denver Mint, as well as other mints, hold very large quantities of gold. And perhaps I've watched too many movies. Gold fingers, I mentioned it earlier. But either way, Fort Knox is a metaphor now for something that is very, very secure. And that, of course, comes from its gold repository. In other countries, it's the central banks. Bank de France, Bank of England, etc. hold the country's gold assets. However, in my mind's eye, I still see Harry Potter's Gringotts Wizarding Bank as an example of this. time i suppose when gold was physically moved from one pile to another to reflect the settlement process much simpler times gold's journey from ancient coins to modern digital assets is a testament to its enduring value and importance of course it is very desirable for some people to have gold the way that it looks jewelry etc etc but While it's no longer the cornerstone of our monetary system, its influence persists in many facets of finance and, as we've discussed now, has major, major roots in our payment systems that perhaps we don't think so much about. Either way, most people are very desirous of having more gold than less. Indeed, during medieval times, and probably before, there are alchemists who tried to make gold. And that's frankly what got us to chemistry, which is interesting to me because that's what I studied at university. I was a pretty poor chemist to be fair, but anyway. To round out the last of the Harry Potter quips, of course, it was the Philosopher's Stone that was supposedly a substance that helped turn base metals into gold. I don't think it worked. Well, there you go. Gold. Did you get the e-worm? The Spandau Valley thing? Oh, it's in my head, I can tell you. Anyway, gold has a very long history. It's completely interwoven with payments. And of course, as I was trying to get across, the change from the gold standard to fiat currency is may not seem like a big deal, but in fact, it really is. It's probably a pivotal moment. It's something that is extraordinarily current for us as we move from currency that we know it and over the next little while, probably five, 10 years or so, that we'll move more to electronic currencies, whether it's CBDCs or it's crypto. Either way, I really hope you enjoyed this episode. If you did, I'd be super grateful if you could do me a couple of favours. One, of course, if you could tell a friend. But if you could also give me a rating, leave me a review, that would be super. By the way, right now I have a review of 5.0, which is pretty cool, just not very many. So if you could, that would be great. Cheers.