[Facebook Query on profile post 11th April 2013]
Brother Al Andalusi. I have watched your lecture on Islamic economic system (University of East Anglia). I have learned many things which I didn’t know before. But many questions also have arisen in my mind. How can the world go back to Gold standard? Sounds like impossible given the Quantitative Easings going on, the latest in Japan.
Abdullah al Andalusi:
Simple. All it needs is one state to adopt it. The current gold and silver reserves can then be mapped on to the existing money supply quite easily. Say the imaginary v.small state of ‘Blogistan’ had 1,000 rupees, and 1 kg of gold. It would map one rupee to one gram of gold. If Blogistan ‘quantitatively eased’ its currency (i.e. printed more money) to the level it had 10,000 rupees in circulation, the currency would then be adjusted accordingly, when adopting the gold standard. The country would assign ten rupees to one gram of gold instead. A modern state could then issue new currency and call it by another name, say ‘goldgrams’ for Blogistan. The currency would have a defined and unchanging value by the amount of redeemable gold it gives the bearer, say one ‘goldgram’ equals 1g of gold.A modern state could issue easy to carry paper tokens/notes that would prevent people needing to have to carry gold or silver on their person. Unlike the current fiat system, people will be able to demand the amount of gold their currency was valued at from the bank. So if I had a bank note with the value of 10 goldgrams, I could go to the bank and get 10g of gold if I wanted to. This is how the gold standard can be adopted easily, and with it’s implementation, bring price stability by prevent banks from printing money at will – causing inflation.