Recently Zoellick, the President of The World Bank, mentioned about Gold becoming more important etc. etc. and that the central banks worldwide should pay heed to it's price. See article here.
The next thing we will see is because Gold is a hard asset but useless-let's start using Cattle again as our standard. Or maybe sea shells, as some parts of Scotland used to use in the 18th century (mentioned by Smith in Wealth of Nations).
If gold bugs had their way we would be sending gold nuggets, biscuits and bars to Amazon.com headquarters in Seattle for every book we buy. Won't make life easy, would it? Well we will be dealing with hard assets.
Or if we go back to our Cattle standard (as in shepherd nations, also mentioned by Smith) I will have to send 2 cattle to Amazon in Seattle from Chile for a shipment of books. Amazon will need a lot of warehouse to keep all these cattle, and trade them for something else which they need. I am sure they will send it to China to buy LCD Display there. Soon we will have massive shiploads of Cattle being carried around worldwide. Goodbye to electronic transfers, money grams, credit cards...Or will we have Cattle cards?
As Smith explained so well-money is an instrument of commerce, it has no real value. The produce of a nation, of the world, doesn't include the money in it-be it paper money, gold, or cattle. It is a circulating tool to circulate the goods produced by society. Using paper money simplifies the circulation, and that is a real increase in productivity of society. That's why we got rid of Gold slowly in the first place (and cattle before that-gold is easier to carry than live, or dead, cattle).
Trying to look for a "hard value" for any currency is a useless exercise-every bunch of currency in the world with you gives you the right to buy a certain quantity of goods (where the currency is accepted), which is it's real and only use.
A futuristic world would be a single world currency. That will make trade simpler, buying and selling of goods everywhere simpler, that will help us all. Whether it is the US Dollar or the Chinese Yuan is not important. What we want with money, with currency, is the EASE of transacting goods which humans produce. That is their only function.
Sanjay
