You’ve probably heard from a lot of buyers of gold how gold is a precious metal that can protect wealth and act as a buffer when inflation goes through the roof and the recession that follows. This is not all that gold is. For many people gold is not just a shiny treasure that everyone covets. It is a safe haven. It is more valuable than having cold hard cash in hand. One would ask, with all these properties why is gold not a currency? We have seen in recent times how ordinary people turn to gold because of their worthless currency. Case in point: Venezuela. The official currency of Venezuela is the Bolivar. Two year ago, a cup of coffee would have cost you roughly a million bolivars. It’s hard to fathom how hyperinflation has affected the economy in that county. You would have to cart notes in a wheelbarrow to get some of the most basic things. The bolivar has become so useless; people throw it out with the trash. The country has largely resorted to the barter system. However, this system works for some things but not for others like hotel accommodation, paying for food at a restaurant, etc. The currency has lost more than 98% of its value. Two million bolivars are roughly worth 29c. With a currency that worthless, the wise thing to do is to revert to assets with an intrinsic value as gold.
Coffee might not sound like much, but in a country where the currency is worthless than a sheet of toilet paper the cost of the simplest things like coffee is a big deal. Whilst gold has value it behaves like most commodities in the way it fluctuates. As great as it might be, gold is not a currency. It might have inspired the concept behind monetary system; it became clear that its rarity would make it hard to be designated as currency that can be used on a daily basis. However, it still manages to retain its value better than most currencies and this is why people continue to buy gold. Central banks and other financial institutions hold gold as reserve.
Why gold isn’t a currency
Gold is not considered as currency because it does not meet the modern definition of what “currency” is. For anything to meet the functions of a currency it has to be durable, portable, and hard to duplicate and be a great store of value.
Gold is not durable
Gold might seem like it’s a strong metal but in its purest form, gold is soft. It would not withstand the normal stresses of being used from day to day. People who buy gold for investment purposes have to find ways to keep it safe and secure. They would store the gold in a safe and not handle the metal too much to avoid scratching or denting it in some way. Gold with signs of wear and stress can be hard to liquidate for a good price. This is something that buyers of gold would want to consider very strongly.
Gold cannot be easily carried around
Consider how money works today. Normal paper currency can be used as it is to make purchases, however money can also be transferred electronically. These days we have credit cards which make paying for things as easy as a simple swipe. You don’t have to physically be in contact with the person you are transacting with. You could be in one country and pay for something else in another country that has its own currency. You cannot do that with physical gold.
Gold cannot be used as a unit of Account
Gold cannot be used as a unit of account. When you get a statement from the bank you can see the money that has been deposited and money that has been withdrawn. Gold is a poor substitute for actual money because it is hard to measure gold as a unit of account. Paying for something with gold can be, and complex and impractical. Holding gold in your portfolio is a good because you will have something to fall back on in hard economic times