Why don’t we just stop printing money?
By Syed Hasan Shirazi
Short Answer: This can only be done if we reintroduce gold and silver as the standard for monetary system. However, this will cause US Dollar to lose its status as the world reserve currency, and hence is not favored by the USA and other Capitalist countries who are reaping the benefits of fiat currency, at the expense of rest of the World.
Long Answer: Currency was based on gold and silver, since recorded history up to WW1. Ancient Greek, Persia & Rome used the gold and silver currency. Since, Islamic currency is the Gold Dinar (4.25g of gold) and the Silver Dirham (2.975g of Silver)[1], hence, all the Islamic Caliphates (Rashidun, Umayyad, Abbasid, and Ottomans) used gold and silver based currencies. This means that currency was fully backed by gold or silver. Thus the exchange rate for each currency was fixed in terms of gold and silver. For example, Ottoman Lira was equivalent to 6.61519 grams of pure gold, while US Dollar was equivalent to 23.22 fine grains of gold. British Pound Sterling, which was the de-facto reserve currency prior to WW1, had a fixed exchange rate of £4.25 per fine ounce of gold. This exchange rate had remained fixed since 1717, when Isaac Newton, the Master of Mint, had standardized it.
Similarly, all currencies of the world had fixed exchange rate with gold and silver, and were in fact fully backed by gold and silver reserves. Thus a country would only issue the amount of currency for which it had equivalent reserves in gold and silver. This meant that no country could “print” money at will, as is the practice nowadays.
Gold standard was abandoned during WW1 because the warring nations (Russia, France, Austria & Germany) did not have enough gold to fund their war efforts, so they resorted to abandoning the gold standard to be able to print money to fund the war. Due to excessive printing of money there was massive inflation, and when the war ended it became impossible for these countries to go back to the gold standard. Britain also abandoned gold standard in 1931 because after WW1, it was not able to restore the supremacy of the Pound-Sterling as the unchallenged reserve currency. Now USA was in a position to dictate the financial policy of the world as US Dollar had emerged as the strongest currency of the World. Thus, many countries fixed their exchange rates in terms of US Dollar, while USD had an exchange rate of $35 per ounce of gold. However, in 1933 USA abandoned redemption of Dollars into gold (for individuals and firms) thereby abandoning gold as a currency, and making USD de-facto reserve currency of the world. However, Central Banks of other countries could still exchange their dollar reserves for gold.
In 1971, under pressure from Vietnam War, and continued French conversion of its dollar reserves to gold under Charles de Gaulle (1959–1969), which was undermining the Dollar, USA abandoned international convertibility of the US Dollar to gold. In 1976 USA officially changed the definition of dollar by removing all references to gold, thereby completely abandoning the gold standard.
After abandoning of gold and silver standard, all the countries can freely print money as much as they want, however, this is the cause of inflation, financial speculation and unstable exchange rates all over the world.
Since the mid 1970s, US has enjoyed monopoly over international monetary system due to its military, economic and political dominance over rest of the world. Hence, US Dollar is the global currency for purchase of oil (a fact notoriously termed as Petrodollars). Therefore, all the countries have to maintain USD reserves to buy oil from open market. This is the reason that USA has been able to maintain its hold over global monetary system, as it has only to print dollars to buy oil (and other items), while all other countries have to earn each and every dollar to pay for the oil they want to buy. So why would America want to revert back to gold and silver standard? One can see how much the USD has depreciated with respect to gold, in the following table:
It is evident from the above table that prior to WW1 there was virtually ZERO inflation, however, after completely abandoning the gold standard in 1971, USD has lost its value many folds, which shows how wealth has been drained from rest of the world by USA. Every dollar earned by rest of the world and kept as reserve, loses its value with time due to inflation. This is the real face of neo-colonialism implemented by USA, which has replaced pre-WW2 direct colonialism of Britain and France.
All throughout the history, international gold and silver standard facilitated the flow of goods and capital among countries and promoted international price stability over the long run. However, during the last century US has exerted its dominance through the introduction of fiat currency, whereby other countries have to keep dollar reserves for international trade, while USD has no intrinsic value like gold and silver. The strength of gold and silver as primary currency of the world is evident from the fact that all major world powers still keep substantial amount of gold in their reserves:
World can only be freed from the clutches of Capitalism and American hegemony, by reintroduction of gold and silver standards. This will end the USD dominance, and exchange rate will be stabilized based on the actual value of money, not its speculative value.
Based on problems faced due to fiat currencies, there have been calls for re-establishing the gold and silver standard. Dr. Mahathir Muhammad was a strong proponent of Islamic Dinar and Dirham to replace Dollar in international trade. However, for this to be implemented successfully, Islamic countries have to unite and follow the policy of self-sufficiency. As other countries like China and Russia are trying to free themselves from the clutches of “Petrodollars”, it is now the time for them to re-establish gold and silver standards as the basis of their currencies too.
Footnotes
[1] Syed Hasan Shirazi's answer to In the time of Mohammad (PBUH) and later, what was the currency policy?
By Syed Hasan Shirazi
Short Answer: This can only be done if we reintroduce gold and silver as the standard for monetary system. However, this will cause US Dollar to lose its status as the world reserve currency, and hence is not favored by the USA and other Capitalist countries who are reaping the benefits of fiat currency, at the expense of rest of the World.
Long Answer: Currency was based on gold and silver, since recorded history up to WW1. Ancient Greek, Persia & Rome used the gold and silver currency. Since, Islamic currency is the Gold Dinar (4.25g of gold) and the Silver Dirham (2.975g of Silver)[1], hence, all the Islamic Caliphates (Rashidun, Umayyad, Abbasid, and Ottomans) used gold and silver based currencies. This means that currency was fully backed by gold or silver. Thus the exchange rate for each currency was fixed in terms of gold and silver. For example, Ottoman Lira was equivalent to 6.61519 grams of pure gold, while US Dollar was equivalent to 23.22 fine grains of gold. British Pound Sterling, which was the de-facto reserve currency prior to WW1, had a fixed exchange rate of £4.25 per fine ounce of gold. This exchange rate had remained fixed since 1717, when Isaac Newton, the Master of Mint, had standardized it.
Similarly, all currencies of the world had fixed exchange rate with gold and silver, and were in fact fully backed by gold and silver reserves. Thus a country would only issue the amount of currency for which it had equivalent reserves in gold and silver. This meant that no country could “print” money at will, as is the practice nowadays.
Gold standard was abandoned during WW1 because the warring nations (Russia, France, Austria & Germany) did not have enough gold to fund their war efforts, so they resorted to abandoning the gold standard to be able to print money to fund the war. Due to excessive printing of money there was massive inflation, and when the war ended it became impossible for these countries to go back to the gold standard. Britain also abandoned gold standard in 1931 because after WW1, it was not able to restore the supremacy of the Pound-Sterling as the unchallenged reserve currency. Now USA was in a position to dictate the financial policy of the world as US Dollar had emerged as the strongest currency of the World. Thus, many countries fixed their exchange rates in terms of US Dollar, while USD had an exchange rate of $35 per ounce of gold. However, in 1933 USA abandoned redemption of Dollars into gold (for individuals and firms) thereby abandoning gold as a currency, and making USD de-facto reserve currency of the world. However, Central Banks of other countries could still exchange their dollar reserves for gold.
In 1971, under pressure from Vietnam War, and continued French conversion of its dollar reserves to gold under Charles de Gaulle (1959–1969), which was undermining the Dollar, USA abandoned international convertibility of the US Dollar to gold. In 1976 USA officially changed the definition of dollar by removing all references to gold, thereby completely abandoning the gold standard.
After abandoning of gold and silver standard, all the countries can freely print money as much as they want, however, this is the cause of inflation, financial speculation and unstable exchange rates all over the world.
Since the mid 1970s, US has enjoyed monopoly over international monetary system due to its military, economic and political dominance over rest of the world. Hence, US Dollar is the global currency for purchase of oil (a fact notoriously termed as Petrodollars). Therefore, all the countries have to maintain USD reserves to buy oil from open market. This is the reason that USA has been able to maintain its hold over global monetary system, as it has only to print dollars to buy oil (and other items), while all other countries have to earn each and every dollar to pay for the oil they want to buy. So why would America want to revert back to gold and silver standard? One can see how much the USD has depreciated with respect to gold, in the following table:
It is evident from the above table that prior to WW1 there was virtually ZERO inflation, however, after completely abandoning the gold standard in 1971, USD has lost its value many folds, which shows how wealth has been drained from rest of the world by USA. Every dollar earned by rest of the world and kept as reserve, loses its value with time due to inflation. This is the real face of neo-colonialism implemented by USA, which has replaced pre-WW2 direct colonialism of Britain and France.
All throughout the history, international gold and silver standard facilitated the flow of goods and capital among countries and promoted international price stability over the long run. However, during the last century US has exerted its dominance through the introduction of fiat currency, whereby other countries have to keep dollar reserves for international trade, while USD has no intrinsic value like gold and silver. The strength of gold and silver as primary currency of the world is evident from the fact that all major world powers still keep substantial amount of gold in their reserves:
World can only be freed from the clutches of Capitalism and American hegemony, by reintroduction of gold and silver standards. This will end the USD dominance, and exchange rate will be stabilized based on the actual value of money, not its speculative value.
Based on problems faced due to fiat currencies, there have been calls for re-establishing the gold and silver standard. Dr. Mahathir Muhammad was a strong proponent of Islamic Dinar and Dirham to replace Dollar in international trade. However, for this to be implemented successfully, Islamic countries have to unite and follow the policy of self-sufficiency. As other countries like China and Russia are trying to free themselves from the clutches of “Petrodollars”, it is now the time for them to re-establish gold and silver standards as the basis of their currencies too.
Footnotes
[1] Syed Hasan Shirazi's answer to In the time of Mohammad (PBUH) and later, what was the currency policy?
