The Purple Light: Can Gold and Silver Ever Return to Circulation?

Tuesday, August 15, 2023

Can Gold and Silver Ever Return to Circulation?

By Clint Siegner

Posted on August 15, 2023

There aren’t many bullion investors who haven’t thought about using their stash to buy groceries one day.

Most of them bought metal in the first place because they know something important about history. Fiat currencies eventually die at the hands of irresponsible leaders, and it can happen fast. People caught with nothing but worthless paper in their wallet will have to resort to barter.

Gresham's Law

Gold and silver coins, rounds, and bars are universally valued. No other asset class is likely to work better during a total currency collapse.

That said, the days of gold and silver functioning as circulating currency for any extended period of time are probably behind us. It is hard to imagine people giving up on the convenience of electronic payments and doing all of their transactions in person, with a physical exchange of coins.

While the days of people routinely carrying and using physical coins are gone, gold and silver have never stopped working as a reserve asset and a superior form of savings.

Convenience isn’t the only impediment to gold and silver resuming their role as a medium of exchange.

Consider what happened to the 90% silver coins still in circulation when the United States switched to clad coinage devoid of silver content in 1965. The silver coins quickly vanished from circulation as people sorted them out of their change and tucked them away. This concept has long been known as Gresham’s Law.

It was a wise move to save the silver and spend the clad copper slugs instead. The price of gasoline was $.31/gallon in 1965. A 90% silver quarter wasn’t quite enough to buy a gallon. Today that quarter can be sold for $3.93 – more than enough to buy a gallon in some places.

The silver people pulled from circulation and set aside has held its purchasing power despite the white metal currently being way down from its highs.

Silver, unlike debased fiat coins or notes, functions as genuine savings.

The Federal Reserve note iteration the U.S dollar is on the road to destruction. Perversely, this only increases the dollar’s utility as currency. People spend cash faster and faster as the value declines.

In a closely related turn of events, U.S. politicians and central bankers are rapidly destroying their credibility. With it goes their chances of being able to restore confidence in the pure fiat dollar.

They may attempt to launch some pure digital token to replace physical cash. Having just destroyed the old currency, they are unlikely to inspire confidence in yet another version of an unbacked and irredeemable currency unit.

Some in leadership elsewhere seem to be sensing the peril as well as an opportunity. Central banks have been buying gold at the fastest pace ever recorded.

The BRICS nations (Brazil, Russia, India, China and South Africa) have acknowledged plans to launch an alternative to the preeminent world reserve currency. It is widely assumed this BRICS currency will be backed in some manner by gold and other commodities.

It is possible a new currency will have an appeal similar to silver quarters in 1965. People in many parts of the world could be incentivized to save the BRICS bucks, or whatever they might be called, and happily spend fiat dollars instead.

One of the great challenges in implementing asset-backed money and getting it to function well as currency will be in getting people to use it, rather than hoard it. Bitcoin, though it is certainly not asset-backed, has encountered this obstacle to widespread adoption.

Gold and silver still play a central role in the monetary system and that role figures to get even bigger in the years ahead. But absent a very dire turn of events, it is hard to envision gold and silver returning as a circulating currency. People won’t part with their metal unless they are out of choices.

Clint Siegner is a Director at Money Metals Exchange, a precious metals dealer recently named “Best in the USA” by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.