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Why is Gold Not Used as Currency?

Catherine Tramell
Catherine Tramell

Published November 9, 2022

Last updated June 30, 2022

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Gold is a precious metal used to make jewelry, coins, bars, etc. But never in its long, gloried history has gold been used as a national currency. When the gold standard was in place, the precious metal backed up paper money, but it was never the actual currency itself, or there was no “gold standard currency.”

Even the gold and silver coins that were and still are made have never entered the money supply or general circulation. These coins were usually gold versions of existing coins or minted to commemorate an event. They are meant to be sold to gold investors and coin collectors.

why is gold not used as currency

The question, therefore, arises, “Why has gold never been used as currency?” Is it because it’s a relatively rare precious metal? That is a reason, and a few other factors are stacked against the precious metal.

This article will discuss why gold cannot be used as legal tender. Close to the end of the write-up, we’ll also touch upon the growing trend wherein gold is used as currency through blockchain tech and what that means. Keep reading to get enlightened.

Why is Gold Not Used as a Country’s Currency?

Gold has supported national and global currencies in the past during the gold standard days. As per the monetary system, gold reserves directly influenced the amount of fiat money central banks could print. Those days, however, are far behind.

In the United States, former President Nixon discontinued the contentious monetary standard in 1971. And there are no signs of the gold standard or similar financial policies rearing face again. There are certainly no prospects of gold getting used as a mainstream currency, and the following are the reasons. 

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Gold Reserves are Relatively Concentrated

Although gold deposits can be found in different parts of the world, they’re not scattered. Few countries, such as Australia, South Africa, and China, have significant gold deposits under their soils. Most other countries have little or no gold reserves beneath their territories.

With such an unequal resource distribution, one cannot imagine the state of the global economy if the countries with high gold mining operations chose to take undue advantage of their standing if gold were to be used as currency.

Gold is Hard to Find and Impossible to Make

The planet has limited reserves of gold—both above and under the ground. If individuals and governments not letting go of their gold into the open market is a problem, the money, resource, and time required to mine new gold is a much bigger complication. It’s a massive undertaking by itself.

And even those companies that go ahead with the capital- and labor-intensive mining process don’t return with a lot of gold in their bags—the gold production is certainly not commensurate to or worth the resources and time invested into the activity. But mining firms continue to be at it because they believe they are not far from excavating a goldmine someday.

Because gold is naturally scarce and the fact that you cannot make it inside a laboratory to replace stolen gold, unlike paper money, the precious metal is not viable as a legitimate form of currency. An element being rare is not a pushback per se for minting coins. But gold is a bit too scarce for the job.

Other metals used to make currency coins, such as iron and copper, may not be very abundant, but they are also not “rare.” Copper and nickel, for instance, are found in relative abundance across the Earth’s crust. And because they are found in plenty, their prices are stable and using them to make coins for regular circulation works out fine.

There Won’t Be Economic Growth

Economies won’t grow with a scarce commodity like gold used as money. The size of a country’s economy would be directly proportional to the amount of gold it has in store. One of the reasons the gold standard failed or caused a barrage of economic problems, like multiple economic recessions and depressions, was it prevented GDP growth.

Once the world got rid of the gold standard, the economies of different countries have not just developed, but there’s a lot more financial stability overall. Although the world has had its fair share of economic difficulties (like the sub-prime mortgage crisis) after the abandonment of the gold standard, it’s safe to assume things would have been much more chaotic if the gold-based monetary system was still around.

Gold’s Non-Fixed Price is a Big Impediment

The world has a limited supply of gold. The demand for gold has typically been high than its supply. In other words, gold rates keep changing. Due to the changing gold price, assigning a denomination to a gold coin or conceiving it as a form of currency would be challenging.

On the other hand, paper or fiat money has zero intrinsic value, and the central banks assign a monetary value to fiat currencies. The value is fixed. Although inflation impacts the purchasing power of the paper currency, the actual value or denomination of the U.S. dollar or any other currency doesn’t change. Not to mention, inflation is human-created or can be managed if central banks are willing.

Then there’s the taxation complication with changing gold prices. If gold is used as currency, its fluctuating prices will cause taxes on purchases to vary as the Fed would have to consider the transaction a sale. The situation could be simplified if the capital gains tax on gold is scrapped. But because that’s a veritable revenue source for the state, the Federal Reserve would not fancy relinquishing it.

Gold is Hard to Measure

The volatility of gold means measuring finances based on gold will be challenging. Besides serving transactions and trades, money must also function as a unit that can be measured or accounted for. If businesses used gold as money, they’d struggle to delineate their revenues, expenditure, profits, liabilities, assets, etc., in their income statements. Individuals will have similar problems managing their finances or household budgets.

A solid and viable medium of exchange should be able to represent different grades of value. Gold will make it extremely complex to create a value range—for instance, a cent to hundred dollars.

One of the major reasons bitcoin is not mainstream yet and will struggle to seep into people’s daily lives is the same volatility issue. Unlike physical gold, the digital nature of bitcoin makes it a lot easy to transact with it. But because it has an inherent or perceived value that’s so unpredictable, embracing bitcoin like the dollar or any other global currency is not easy.

Gold is a Value Repository

Unlike paper money, gold is valuable by itself. People will find it difficult to let go of gold during a transaction. People do not have second thoughts about dollars or any other currency or piece of plastic used for payment. If gold money becomes a reality, people will hold on to the currency rather than spend it, like how people buy gold and keep it in possession now. And even governments and institutions would be caught doing the act.

Central banks have used gold as a reserve and traded the precious metal in the past. But governments are now growing reluctant to part ways with their gold fund if some of the recent crisis scenarios are any indication—the 2013 Cypriot financial crisis, for instance. In 2012-2013, Cyprus was broke and couldn’t pay its debts. Its banking system collapsed, further exacerbating the situation.

Cypriots were stopped from converting their euros to dollars, pounds, yens, or any other currency. Luckily, Cyprus had some gold, like every other country in the world. Other countries in the EU urged Cyprus to sell some of its gold to manage the crisis. But Cyprus’ central bank was not keen because it wanted to hold on to the store of value linked with gold. The country also had to maintain a certain gold reserve.

Basically, even times as dire as the crisis couldn’t nudge the country toward liquidating some of its gold assets.

Gold Has Varied Applications

Gold has intrinsic value. But that is ascribed value based on what gold can accomplish for its patrons courtesy of its physical properties. If gold didn’t serve any real purpose and just glittered, it might not be as valuable, regardless of how rare the metal is. Mining companies wouldn’t have drilled the ground in search of fresh gold deposits.

Gold is used in manufacturing, medicine, tech, and several other industries. The anti-rust, anti-corrosion, and easy-to-work attributes are the primary reasons gold continues to be in demand in various economic sectors. Gold is so durable you can beat it to a pulp and still cause no harm. Although silver and some other metals could accomplish what gold does, they do not do it with the same efficacy and efficiency.

That means the requirement or demand for the precious metal will not cease to exist just because central banks need more gold to make currency coins. With little to no gold left to the industry, the demand for gold would only increase, causing a whole new set of problems and complexities.

Gold Currency Coins Would Shrink, Literally

Because gold is a precious commodity, coins or any item made of gold in free circulation will be highly prone to pilferage. People will shave off some of the gold in a gold coin before expending it. And with multiple people resorting to such nefariousness, the affected gold coin would cease to be its original size throughout its circulation period. Stories of gold coins being melted down are not unheard of.

Also, gold is a relatively soft metal and would be easily susceptible to scratches, bends, chipping, etc. Although other metals like copper and aluminum can be added to boost rigidity, the ideal mix may not be that easy to agree on universally. And assigning the correct value to the coin would continue to be a headache.

Gold Functions as a Hedge Against Inflation

Gold prices move in the opposite direction of traditional money. When the stock market rallies, the market price of gold falls. When the financial market slumps, gold rates and other commodity prices rise. Gold has had this inverse correlation with paper money for decades. How would this equation change or get affected if gold becomes currency?

With paper currency out of the way or used as an accompaniment to gold money, the value of gold will only go up further during an economic crisis, further skewing the balance in the yellow metal’s favor.

As mentioned earlier, gold’s applications will not change once it becomes currency. Governments and central banks cannot prevent or afford to stop industries from using gold in their products and processes. Even if that happens, hypothetically speaking, the mad rush for gold will only increase during testing periods since it would be impossible to issue a diktat against individual possession of gold.

Any such move would amount to autocracy, and you can imagine what that would lead to.

Marrying Gold with Blockchain Could Be a Solution

marrying gold with blockchain could be a solution

Traditional currencies are no longer pegged to gold or use the gold standard. That, however, doesn’t prevent gold from being tied to non-conventional currencies, like digital tokens or cryptocurrencies. More than a handful of these digitized tokens with values tied to gold exist already. TetherGold, PAX Gold, Goldcoin, etc., are some of them.

The gold backing up these tokens is usually pure gold bullion locked away in secure vaults. Buying the cryptocurrency linked to gold amounts to owning a small portion of the stored gold. The gold-backed tokens can be bought and sold on cryptocurrency exchanges, such as Coinbase and

Once you purchase the token, the transaction gets recorded onto the blockchain ledger, confirming ownership. The purchase is immutable, or nobody can erase or delink the receipt to your account.

Can anybody start gold-backed cryptocurrencies? To roll out a gold-backed digital token to the public through blockchain tech, the following are needed:

  • A vendor or gold bullion seller
  • A custodian vault where the vendor stores gold
  • An auditor to inspect and confirm gold possession and other vendor activities

Combining blockchain and technology makes integrating into the modern payment system easier than using gold as a standalone form of currency. The synthesis will expand gold value options. For instance, a gold-linked crypto debit or credit card would let people transact with gold at retail stores worldwide.

Most importantly, it would suit the digital lifestyle most people are embracing. With physical gold ownership, digital payments won’t be possible. Considering the several benefits of gold-backed cryptocurrencies, even some countries are launching their gold-backed cryptocurrencies..

Not to mention, cryptocurrencies don’t have fixed values, making it hard for their owners to decide between transacting with them or holding on, hoping the value would go up.

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Long story short, gold is not and cannot be used as currency because it has no traits of a “currency,” at least not in the current scenario. Moreover, countries are unwilling to adopt gold as currency as there’s also not enough gold in the world, to begin with. 

Gold is like bitcoin. Its supply is limited, and it cannot be made in labs. As a result, gold is valuable and impossible to perceive as a thing that can be in free circulation. Moreover, assigning a proper face value to a gold coin would be highly complex. Like bitcoin, gold would have to be broken down into multiple pieces for practicality. But that’s only possible if the metal's physical aspect is removed from the equation.

Fiat money has its naysayers and gets a bad rap for how it’s a tool that countries and central banks use to control people. Paper money also gets blamed for how governments use it as an inflation tool.

But despite all the criticism, fiat currency has not gone anywhere. It has been doing the rounds for centuries and is still relevant because it just works. Gold, silver, or any other precious commodity does not fit into the scheme of things.

Long story short, gold was never used as currency, and there’s still no form of gold money around. And that status quo is highly implausible to change in the near or distant future.

If you are interested in non-currency gold coins, buy a few and put them under a gold IRA.


Are there gold coins with face values?

Yes, most gold bullion coins have an amount specified on them. However, those face values are nominal or not representative of the intrinsic value of the gold coins and are certainly not meant for public circulation. The $50 American Gold Eagle coin, for instance, is 1 oz. (28.3g) gold with an intrinsic value of close to $2,000.

The nominal face values are there for collecting or investment reasons and also possibly hint towards how not ready gold coins are for public circulation.

Have there been silver currency coins?

Yes, there have been silver currency coins. Silver coins go down as one of the first few metals to be used for the mass production of coins, in fact. Silver’s use for coinage can be traced back to ancient Greek and Persian times, when silver coins were popularly used for trading. The British pennies minted before 1797 were also made from silver.

Silver, however, is no longer the material of choice for coins. It’s pretty much impossible to see silver currency coins now. One of the reasons is it’s one of the five precious metals. But the most significant reason is the metal quickly tarnishes. When exposed to air’s sulfur-rich gases, silver discolors and darkens, forming a layer of tarnish.