Why Gold is Always Money

May 05, 2023

by Alasdair MacLeod Gold Money

That America faces a severe banking crisis has become plain to see, but the authorities’ response less so. Almost certainly, the crisis has much further to go in America, spreading to other jurisdictions. We can only hope that central banks will protect all depositors, but that is far from certain in this early stage.

These febrile conditions are made infinitely more difficult by the contraction of bank credit. The cyclical nature of bank credit means that the shortage of credit will intensify, driving up borrowing costs even in the face of a recession. Interest rates are no longer under the control of central banks, though market participants have yet to realize it.

It has important implications for the valuation of credit. In order to understand the consequences, this article draws out the legal and practical distinctions between money, defined as gold and silver but principally gold, and credit in the form of banknotes and bank deposits.