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Does A Gold Currency Make Sense?

Gold coins have circulated for thousands of years. Using gold in coins for payment purposes has a great combination of advantages—durability, portability, standardization, relative ease of production, and others. One limitation of using gold coins for commerce, however, has been that it was most practical for face-to-face transactions. Another limitation is that the relatively high value of gold meant that it was not that practical for small transactions.

As a consequence, silver also became a popular metal used in coins. Gold and silver coins had the advantage over other metals used for coinage in that they had an intrinsic metal value close to the face value at which they were exchanged. Thus, even if the issuing government or agency failed, gold and silver coins could still circulate because they represented their own guarantee of value.

Coins have another potential disadvantage—bulkiness. For very large transactions, it might take a significant quantity of gold or silver coins to make payment. To facilitate commerce, paper currency, and non-monetary instruments such as checks appeared. Later, various charge cards, credit cards, debit cards, and prepaid cards appeared. In recent years, cryptocurrencies have appeared. In the United States today, about 90 percent of transactions involve forms other than coins and currency for payment.

Still, there is a certain level of criminal use of other payment forms to defraud sellers. As a consequence, there are some sectors of commerce where the use of coins and currency is more prevalent than elsewhere. As an example, when trading numismatic items and precious metals, a much higher percentage of transactions are settled with a cash payment than in other industries.

Because people over history have shown a preference to receive physical gold or silver rather than other payment forms, there have been a number of attempts to tie these other forms to precious metals.

When the U.S. government began issuing paper currency, it experienced significant resistance to its acceptance, especially in the western part of the country. In California, for instance, if someone insisted on paying for purchases with paper currency rather than gold and silver coins, the merchant who was forced to accept the currency might refuse future business from such a party—and in some cases would post notices and advertise who it was that used paper money for payment to warn other merchants to turn down patronage of such recalcitrants.

The government eventually encouraged public acceptance of paper money by issuing Gold Certificates and Silver Certificates that could be redeemed on demand for the underlying physical coins.

In the 20th Century, first gold and later silver disappeared from circulating coinage. New paper money issues stopped being redeemable for precious metals.

Once gold and silver coins disappeared from circulation, there continued to be demand for physical precious metals that could be used in everyday commerce. Some entities established checking accounts where payments could be written denominated in any paper currency but would be settled by the clearing institution converting the customer’s physical precious metals held by that agency.

In 1998, an attempt was begun by Bernard von Nothaus to establish an alternative circulating gold and silver currency in the U.S. called the Liberty Dollar. The Liberty Dollar program eventually issued paper and digital warehouse receipts that were redeemable on demand for the underlying gold or silver. An ingenious feature of the paper warehouse receipts was that they each contained a unique bit of DNA, a feature to enable verification of genuine issues and to discourage counterfeiting. The U.S. government eventually convicted von Nothaus for counterfeiting with the Liberty Dollar program.

The appeal of being able to own money that contains either physical precious metals or is redeemable on demand for physical precious metals has sparked other ideas. Several cryptocurrencies are being marketed as somehow backed by physical precious metals. To the extent that might be true, it would make those currencies more popular than those that are not.

In recent years, technology has made it possible to manufacture “gold” currency. Instead of issuing currency that would be redeemable for gold, the United Precious Metals Association a few years ago began to issue “Goldbacks.” By using new technology, the organization can deposit small quantities of gold onto the currency. As a result, it can issue scrip that literally contains either 1/1,000, 1/200, 1/100, and larger fractions of a troy ounce of gold. This makes it possible to issue actual gold currency of small enough purchasing power that it might be usable for everyday commerce.

Goldbacks were initially issued to offer for possible circulation in Utah after that state adopted legislation in 2011 making U.S. government gold and silver coins legal tender in that state. The idea behind the possible public interest in owning such currency is that they contain the physical gold content stated on them. Over a dozen coin dealers offer Goldbacks for sale.

While I am intrigued by the concept of being able to use physical gold in everyday commerce, there are some potential problems. UPMA warns that if their currency is mishandled the gold could delaminate from the currency. Also, it does not appear that Goldbacks include the anti-counterfeiting feature of bits of DNA such as was used in the Liberty Dollar warehouse receipts. The third impediment against potential demand to use Goldbacks in circulation is that they trade for a significant premium above the underlying gold content—far more than 50 percent.

While I look forward to future improvements to develop circulating precious metals payment forms, I suspect that it will never be economically practical and efficient to produce ultra-small denomination gold coins or currency. I anticipate that the centuries-old solution of issuing silver coins for everyday commerce will continue to be the best alternative.

Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award 2012 Harry Forman National Dealer of the Year Award, and 2008 Presidential Award winner. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2019), Professional Numismatists Guild, Industry Council for Tangible Assets, and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and become part of the audio and text archives posted at

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