Gold as a banking reserve

The unsuitability of using gold in coins for cash transactions at the small end of the monetary scale is not the only barrier to a gold centred currency. There are other difficulties in using a gold based currency where large sums are involved.

For example, in modern economies normal practice is that salaries are paid at the end of the month. There are more than twenty million workers in the UK alone, and their earnings exceed $3,000 per month. So they are issued with $60 billion at each month end. This is equivalent to about 6,000 tonnes of gold and is a figure achieved without taking into account any savings, or any of the substantial monetary floats required to support non-salary related corporate and government expenditure.

Yet the entire British central bank reserve is only about 400 tonnes, which shows that Britain (like any other western country) could not possibly underpin with gold the supply of its national currency necessary to support the prevailing level of economic activity, at least not without a massive increase in the pound sterling value of gold.