Which is better a Gold Standard or Fiat Currency System?
The precise answer is that the APP supports whichever monetary system conquers the menace of inflation, guarantees economic stability, and maximizes confidence in the market. It’s regularly argued that a fiat currency is necessary because experts at the central bank manipulate it to achieve desired monetary objectives. For example, when the government shut businesses down, the Bank of Canada employed stimulus to keep owners afloat. In booming businesses cycles, the central bank restrains from boosting the economy; in times of depression, they “pump” it by printing money.
The problem is that bureaucratic institutions tend to be imprecise, and their “cures” are often worse than the disease; inflation is roaring because the central bank created too much cash to stimulate the stagnant COVID economy. More than that, we ought to question if the interests of the Federal Bank are congruent with our own. Are we so sure we want a few self-interested economic experts in charge of the money supply? What about a gold standard?
It’s generally considered antiquated and incompatible with modern economies. In fact, the argument against a currency backed by a precious metal is precisely the same as the argument for a fiat currency; with a gold standard, you can’t manipulate the money supply. In a crisis or during times of distress, the economy can’t be primed with inflationary money creation because the supply of cash is tied to gold, and gold can’t be conjured from thin air. This restriction, however, is a good thing!
Again, our central bank printed too much money too quickly, and now the cash’s value is turning sour. Limited by a gold standard, that wouldn’t be possible. In addition to this, gold is real. Fiat currency is valuable only insofar as the central authority appoints it so. With gold, this isn’t a problem. The worry that money will instantly devalue is assuaged and, considering our present economic circumstances, is a very desirable thing. Considering there are debated pros and cons of both systems, let’s look at the purpose of monetary policy.(1) Monetary policy is successful when it:
- Stabilizes prices
- Promotes Employment
- Promotes Economic Growth
Therefore, our present system in Canada is a failure. Excessive and irresponsible printing at the federal presses ensured:
- Prices are not stable
- Employment is uncertain, and although growing, is doing so much slower than anticipated.(2)
- Economic growth is relatively stagnant (our economy contracted 1.1% compared to the projected 2.5% growth).(3)
On the contrary, the APP is satisfied with nothing less than an economically virtuous and healthy Alberta. That’s why we staunchly advocate for a monetary policy that accomplishes price stability, low unemployment, and sustained economic growth. Milton Friedman’s “k percent rule” was created to pursue these objectives. Simply, it increases the money supply at a constant and low rate every year regardless of business cycles.(4) As such:
- Investors and business professionals are guaranteed their investments won’t be hijacked by rogue governments spending audacious amounts of money.
- People can expect stable, predictable, prices year after year.
- Alberta will defeat inflation.
- Economic growth is encouraged.
- Alberta will be recognized as a monetary oasis for producers and consumers around the world.
Nonetheless, whichever monetary system accomplishes these targets, the APP will champion it. As economists and policy analysts, we will continue to debate and discuss which theory is most conducive to a steady and strong Alberta where enterprise is no longer stifled but encouraged.