subject: What Factors Affect How Much Money Is In The World? [print this page] Money" is what we all use to buy goods and services. In itself, it is worthless unless backed by a guarantee by someone to make the paper notes and coins we use actually worth something.
To be useful, money has to have a number of attributes. It must:
- be universally accepted as a means of payment;
- retain its value over time;
- have a common unit of account or worth accepted by everyone;
- be divisible;
- be portable;
- be durable; and, crucially,
- be limited in supply.
The problem with money is that you cannot have too much of it since this would devalue its worth. This is a common problem experienced by countries with economies in financial difficulties and which seek to print more money without ensuring that it retains its worth. What happens is that more money enters circulation meaning that more 'cash' chases the same volume of goods. In a supply and demand economy (which most in the world are) prices increase leading to inflation. Inflation devalues the worth of savings and money which can be detrimental in the long term to wealth creation.
So underpinning a country's money must be something else with value since paper and coinage are worth nothing alone.
In days gone by the universally accepted 'money' was gold. This is a rare metal where only 100,000 tons or so have ever been mined. It is 20 times rarer than silver and 15,000 times less common that copper. This rarity value has always helped maintain its appeal and mystique.
Of all the gold ever mined nearly 98% is still in circulation and close to 40% is held by national banks to underpin the currency value in international markets. When paper currency was introduced as a more convenient and less bulky means of payment, it was backed by a promise to deliver gold on demand to the same value. Hence, the amount of gold possessed by a country became the determining factor of how much money it could place into circulation. Nowadays the value of gold held does not link directly to the amount of money in circulation as other convertible tradable assets have taken its place.
Once gold became the international value that determined one country's money value against another, each currency was assessed a standard value based upon what could be bought in a basket of goods. These 'gold standards' then became fixed levels for converting currencies and this system lasted for many years up until the 1970's.
So determining how much money there is in the world is really an ethereal question. Gold still has tremendous value as when economies or countries start to experience economic problems, investors sell 'money' and buy safer gold. Hence its value tends to increase in times of recession and drop when economies boom.
So with gold now trading at $1,100 per troy ounce and over 100,000 tons in the world that alone equates to around $3,536,500 million alone! And that only scratches the surface.
by: Michael Browne
welcome to Insurances.net (https://www.insurances.net)
