Community-based Banking (9) Gold

Money requires trust to function effectively. Gold is not real money. It is actually a form of barter. When a person makes a purchase with gold coins, they have exchanged one good for another. Gold is easier to barter than most other goods, because most people will accept it. Gold works well in in a society where trust has broken down, as it does not require any trust. People do not have to hand over the things they are selling until they have seen the coins they will receive exchange. Carrying round gold coins is quite inefficient, but it allows free exchange of goods to take place in a society where trust is gone.

During times of war or social tumult, trust naturally declines. Gold become more important for trade, because no one knows who can be trusted. Someone accepting gold or silver in exchange for goods trusts nothing but the accuracy of the scales and the quality of the metal.

The use of gold coins usually leads to a gold standard where bankers store the gold and their notes circulate as money. People trust the bankers issuing the money, but they do not need to trust the rest of their community, because they can always go and withdraw their gold and use it for trade, if people stop trusting the banker’s notes. The gold standard is not based on trust, so it is a money system for communities with no trust.

When trade and exchange take place between people in different communities and nations, the transactors do know each other, so they will not usually be able to trust each other sufficiently to give credit. Gold and silver were always important for people travelling to different countries, because it enabled them to make payment for purchases from people who did not trust them. Coins were not much use in this situation, because even if their genuineness was authenticated by the mark of a banker or king, they would be trusted outside their own territory. In the traditional world, travellers would use scales to measure the gold or silver they used to make purchases while on their journeys.