The election of Donald Trump, with his openness to alternative monetary policies including the gold standard, ignited interest in cryptocurrencies. While often compared to fiat currencies like the dollar, cryptocurrencies share more similarities with reserve currencies like gold. Both are finite; cryptocurrency is constrained by computational power and energy, while gold is limited by its geological availability and the capacity to extract and refine it. This inherent scarcity creates parallels, but also key distinctions, between using gold and cryptocurrencies, like Bitcoin, as a reserve standard. El Salvador’s adoption of Bitcoin as legal tender, while challenged by the IMF’s loan conditions requiring a rollback of Bitcoin-friendly laws, highlights the ongoing debate surrounding the role of cryptocurrencies in the global financial system. Considering the environmental impact of both gold mining and cryptocurrency mining, exploring the history and implications of the gold standard offers valuable insights for a sustainability-focused evaluation of these monetary systems.
The history of the gold standard is intertwined with figures like Isaac Newton, who, as Master of the Royal Mint, championed gold over silver, perhaps influenced by gold’s rarity and durability. The allure of gold has historically driven significant investment and infrastructure development, as exemplified by the Klondike gold rush. Jack London’s account, while acknowledging the seemingly disproportionate investment in extracting gold, highlighted the lasting benefits of infrastructure development stimulated by the rush. However, gold’s value wasn’t universally recognized. Saharan desert tribes, for instance, prized salt over gold, illustrating the subjective nature of value and highlighting the context-dependent nature of resource scarcity. This historical context provides a backdrop for understanding the subsequent adoption and eventual abandonment of the gold standard in the 20th century.
The resurgence of gold in the late 19th century, fueled by discoveries in Southern Africa, led to the formal adoption of the gold standard in the United States. The fixed price of gold at $20.67 per ounce, maintained from 1834 to 1933, reflected a global embrace of gold as a reserve currency. This period saw significant economic growth, fueled in part by gold rushes that spurred industrial development. However, the limitations of the gold standard, particularly its inflexibility in responding to economic shocks like wartime demands, led to its eventual decline. The Bretton Woods agreement, established after World War II, initially retained gold as a reserve currency with a variable price. However, the Vietnam War and subsequent economic pressures led President Nixon to completely sever the dollar’s link to gold, marking a shift towards a fiat currency system based on trust in the US dollar.
The contemporary debate surrounding the gold standard reflects a renewed interest in its potential to impose fiscal discipline. Proponents argue that it can curb inflationary pressures by limiting the ability of governments to print money and accumulate debt. This resonates particularly with fiscal conservatives. However, the severe environmental consequences of gold mining present a major obstacle. The vast amounts of waste generated and the exorbitant cleanup costs associated with gold extraction pose serious ecological concerns. Balancing these environmental costs against the potential economic benefits and the livelihoods of millions dependent on gold mining is a complex challenge. This tension between economic stability and environmental sustainability is central to any discussion about the viability of returning to a gold standard.
A potential solution to mitigate the environmental damage of gold mining while retaining its role as a reserve currency involves a conceptual shift in how we perceive and manage gold reserves. Instead of physically extracting and storing gold, a system of certified global gold reserves could be established, with ownership rights represented by shares. This “leave it underground” approach would effectively treat gold reserves as a global asset, traded and managed without the need for physical extraction. A tiered system could be implemented, offering preferential purchase rights to countries with gold deposits on their land, mirroring stock options offered to company founders and employees. This approach, while offering a more sustainable alternative to traditional gold mining, prompts a broader question: could other metrics of planetary carrying capacity serve as a basis for monetary systems? The concept of leaving gold undisturbed could pave the way for exploring more ecologically sound methods of measuring and storing wealth.
The gold standard’s historical record offers mixed results regarding its effectiveness in promoting economic development. However, the need for greater financial discipline within our institutions remains a pressing concern. While the gold standard and its associated mining activities have undeniably caused significant ecological damage, they have also played a role in shaping the modern economic landscape. The inherent connection between monetary power and natural resource limitations, a central tenet of many environmental philosophies, was inadvertently acknowledged by the gold standard. The discipline it imposed stemmed from the natural constraints of gold extraction and finite reserves. Contemporary discussions about reviving the gold standard, or even linking cryptocurrencies to gold, should focus on this fundamental principle. Such an approach could potentially bridge the divide between environmentalists and proponents of fiscal conservatism. The key takeaway is that the appeal of the gold standard for financial stability lies not solely in the properties of gold itself, but also in its scarcity and durability as a natural resource. Revisiting a modified version of the gold standard could offer a potential framework for addressing excessive consumption within a capitalist system.
