Alexander Reynolds <chrome@jhunix.hcf.jhu.edu> writes
Since the topic of backing seems to go towards gold, what about the purity of the bullion and who (which government) presses it? Gold pressed by the Canadian government at .999 troy oz might not be worth a whole lot as backing if that government collapses tommorow.
Gold is gold. As a jewelers son I can assure you that it is quite easy with a touchstone and a few chemicals to assay the gold. This is what makes gold such an easily convertable currency, you can easily determine the purity and weight of the bullion. I have seen coins pressed by the 17th century spanish empire (from the Atocha, mostly silver, but a few of the gold ones as well) that one could still negotiate today. The value of the coin or bullion is not that it has the backing of a particular government, it comes from the material used. This very fact is what distinguishes gold and other scare materials from paper currency. If the U.S. government collapses your dollars are going to be just paper, but your gold coins will always be gold and can always be used for negotiation. This is why gold increases in value as governments and economies become unstable (e.g. the recent problems in Russia caused a slight increase in the price of gold as more people bought it, just in case...) because it will always have a value regardless of which government happened to package it. In fact, it need not even be packaged/minted by a government; I could just as easily melt down some jewelry and package it as bullion myself and anyone else who I wish to negotiate my gold with could easily verify the weight and purity of the gold themselves. jim