I think you're debating a strawman, though. Sure, there are delusional / ignorant goldbugs who make stupid arguments, but you can find that in pretty much any domain. There are also reasonable people, including heterodox economists, who understand the history of currencies and monetary systems, and still advocate for a return to pegged currencies or for precious metals as a part of a diversified portfolio. You don't have to agree with them, but ad hominems are probably unnecessary.

I mean, it's not even that fringe is you consider that Central Banks sure hoard a lot of gold specifically because they see it as useful in certain (bad) economic scenarios.

>the US dollar was never 100% backed by gold reserves

The dollar was created by the coinage act in 1792, with dollars being made of the equivalent amount of silver or gold. To me this seems like practically same thing as being 100% backed by gold reserves.

If we're talking about paper dollars or originally "Demand Notes" from 1861 onward that would be the case as they were put in place because the government was broke trying to fund the Civil War,[1] and had to issue currency on credit[2] (about $1.5b additional in todays dollars, for comparison there's about $51b total in 2021).

>A gold standard is actually just a peg, a promise by the government to exchange dollars for gold (and vice versa) at a fixed rate. And you don't technically need any gold for that.

Wouldn't you need enough reserves to allow anyone who attempted to exchange their dollars for gold to do so? Fractional banking and bank runs seem like a rough analog.

[1]https://www.mycreditunion.gov/financial-resources/history-un...

[2]https://www.cs.mcgill.ca/~rwest/wikispeedia/wpcd/wp/d/Demand...

Regarding gold/silver backing - yes, if they let you actually do that redemption or exchange. Something that has historically been suspended or banned multiple times. Including by FDR in 1933, and Nixon when the US exited the gold standard entirely.

[https://www.history.com/this-day-in-history/fdr-takes-united...]

Like Tether, if you can’t actually redeem it for what it’s nominally backed by, is it really backed by it?

If I remember right Nixon's exit from the gold standard was at least pitched to the public as a temporary measure, and his team was slightly surprised at how little effect it had in terms of causing panic.

I think to some extent we've been riding that initial wave of trust and backing. The alternative I suppose is we've figured out how to manage things correctly and no longer need a peg, but the lead up to the end of Bretton woods sounds ominously familiar to the 2000s. CBDCs seem like the only thing that could potentially fill a similar role.

"However, from 1950 to 1969, as Germany and Japan recovered, the US share of the world's economic output dropped significantly, from 35% to 27%. Furthermore, a negative balance of payments, growing public debt incurred by the Vietnam War, and monetary inflation by the Federal Reserve caused the dollar to become increasingly overvalued in the 1960s...The American public believed the government was rescuing them from price gougers and from a foreign-caused exchange crisis."[1]

[1]https://en.wikipedia.org/wiki/Nixon_shock

Most gold bugs I've interacted with are more interested in replicating commodity money (i.e. gold coins for trade) than gold standard (i.e. dollars backed by gold).

Gold standard is dumb for reasons you say. Commodity money is by design supposed to be 100% backed, as the gold is actually inside the money and the face value is the weight gold inside it.

There is a reason why there has never existed a society in which the majority of transactions were done by people exchanging gold or silver coins kept in little leather pouches. It's just too impractical.

- problems with availability - in most traditional societies, there just weren't enough coins to meet transaction demand, and so people transacted based on credit or other informal ledgers.

- problems with theft

- problems with weight

- problems with people shaving some of the metal off

- problems with counterfeits -- not actually easy to test the percentage of gold in your coin

- problems with credit markets. Credit markets need to move money around quickly and efficiently, and be able to raise large sums. That's not compatible with socks filled with gold buried under your rose bush. The money needs to be available in the credit markets so it can be efficiently deployed, moved around, etc.

So from the beginning, gold was used for specialized purposes -- e.g. to settle international trade or large payments, rather than as a primary means of payment.

There is no way to get around this. The moment you introduce gold, merchants will start borrowing gold by selling Bills of Exchange -- effectively promises to pay gold. These bills of exchange will be more valuable if they are bearer instruments, and so the merchant will make them bearer instruments (to allow raising more money). Then you get a market in which people are buying and selling bills of exchange at a discount. Now you have a discount rate and a money market, and all you are missing is a financial crisis in which a large bank steps to staff their discount window when the smaller traders are forced to close their own. All of a sudden, you are back to credit-based money, as the Bills of Exchange are themselves used to settle more trade than the gold coins. It's just a lot easier to carry a piece of paper that says "X promises to pay 1000 gold coins next year" then it is to actually lug 1000 gold coins around.

The ease of convenience, the needs of merchants to tap capital markets, will ultimately subvert whatever metallic standard you come up with. Then, financial crises will drag in the government to start regulating and centralizing the capital markets.

What you describe has a lot of merit but it also explains the move from silver currency to gold. Gold has a lot of interesting properties from the point of view of coinage and an instrument of value:

1. Up until the fairly recently (ie the last century) it was the densest element anyone could get in quantity. This was not true for silver so silver currency could (and was) debased (like you say). This was more difficult with gold as doing so would lower the density;

2. Gold has a relatively uncommon appearance. There are very few substances that could imitate its look. Iron pyrite (aka "fool's gold") is the common one but it's not as dense and is harder. It's also why people would bite into gold coins to verify it;

3. Shaving or cutting coins was actually more of a feature than a bug. Consider "pieces of eight" [1].

Previous metals as a basis for coinage were more important than perhaps you're giving it credit for. Ultimately what happened was that the coins themselves because a store of value and the metal content became less important as counterfeiting coins wasn't typically trivial. This of course was what ultimately led to paper money.

[1]: https://www.kingmanyachtcenter.com/sea-history-what-is-a-pie...

I've never stated commodity money should replace all other form of exchange. In fact per above, you list a system where both credit and commodity money exist in parallel with one another.

>It's just a lot easier to carry a piece of paper that says "X promises to pay 1000 gold coins next year" then it is to actually lug 1000 gold coins around.

Not sure if you've ever carried around a gold coin, or ~$1800 (the value of 1 oz gold coin). But the amount of space it would take up, within factor of 2.

~1.8 cubic inches for the gold and 1.2 cubic inches for the bills. So maybe 50% worse space wise for the gold, but in any case not enough to make carrying gold much more burdensome than cash. Sadly you can no longer obtain large (~$1000) bills as they have been eliminated pretty much worldwide.

> I've never stated commodity money should replace all other form of exchange. In fact per above, you list a system where both credit and commodity money exist in parallel with one another.

Perhaps I wasn't clear, but the phenomenon I'm describing is one in which the credit market grows to become more important than the metallic market and eventually destroys it, because in order for the bank trying to calm the crisis to credibly maintain that discount window open, it will need the power to create money in unlimited amounts (not actually to create it, but to convince investors that it can create it).

So what happens is that when credit markets are in their early stages, they go through violent disruptions every few decades that get more and more intense as the credit markets grow, and at some point, the survival of the economy as a whole is at risk, and sometime before that happens the government says "enough. We need an elastic money supply that can guarantee that bills remain discounted no matter what. We have to put an end to the cascading failures due to panics/manias in the credit market." That's when the metallic market is replaced with fiat.

So while you often hear how every fiat currency fails, you don't often hear how every metallic currency is replaced by fiat, and I'm trying to describe this process -- that functioning currency markets inevitably give rise to credit markets, and it's the credit markets that are required for capital investment and economic growth, not the currency markets. Thus the need for stable credit markets is inevitably what drives the abandonment of metallic or any other kind of inelastic money -- of which bitcoin is an example.

This is not to say that inelastic goods can't survive as a tradeables. Stamps even survive as tradeables. So do paintings. But they don't survive as currencies in an industrial economy that requires a large, steady flow of capital investment.

FYI, Historically, it has been really common to debase currency by diluting or reducing the precious metal content of coins.

[https://en.m.wikipedia.org/wiki/Methods_of_coin_debasement]

Valid, although once the gold is in my hands it's kind of hard to debase it. Of course the weakness is that it may be impractical to check it is debased every time you receive it (although it is practical for large transactions).

Each money has its own weakness. One of the big weaknesses with fiat and gold-backed money is that it can be debased even while it is in your personal possession.