Money, it’s gas, as Pink Floyd sang and as we all know. But it’s also a medium of exchange which enables economic calculation and our sophisticated civilization. Over history, a lot of things were used as money, including cattle or salt, but precious metals dominated as a medium of exchange.
Gold’s Monetary Value
Gold is by many considered as ultimate money. This is because the uniqueness of gold made the shiny metal valuable and highly sought after since the very beginning of recorded history. The yellow metal was chosen as money because its durability (gold is practically indestructible), rarity, density, portability and luster. As everyone desired gold, people adopted it as medium of exchange – it was the most marketable commodity in the marketplace. Just think: food can spoil (with the exception of salt), armor is not very handy, cattle is not very divisible and portable, other elements include gases or radioactive substances… and so on.
First gold coins were struck on the order of King Croesus of Lydia around 550 BC. For years, bullion coins and bars were used in trade, often in parallel with silver and copper. From the 19th century until 1971, gold was the basis of an international monetary system under the gold standard (it means that national currencies were fixed to gold at a set price per ounce, or defined in terms of gold’s weight). It is still used as a reserve asset by national central banks and other official agencies such as the IMF. Gold is also used widely as an investment as it is considered a safe-haven asset, i.e. the only true money which prevails if the current monetary system based on fiat currencies collapses. We are not saying that it will happen, but we note what investors think and why they purchase gold – they still treat is as an monetary asset, or an asset with monetary value.
Silver’s Monetary Value
Although gold became ultimately the basis of the international monetary system, silver was also used as money for thousands of years. Both precious metals were used in parallel as money and later as legal tenders. Actually, they complemented each other. Gold was used in international trade and larger transaction, while silver, which was less valuable, was better suited for smaller, daily purchases. Although gold eventually (it is believed that silver was viewed as worth more than gold in the ancient Egypt) triumphed, many countries were on the silver standard prior to switching into the gold standard. And some other countries, including the US, adopted bimetallism for a while, i.e. a monetary standard in which the value of the monetary unit is defined as equivalent to certain quantities of gold and silver, creating a fixed rate of exchange between them (but the fixed ration created significant economic problems, according to the Gresham-Copernicus law).
Copper’s Monetary Value
Although almost everyone knows that gold and silver served as money, only a few are aware that people also used copper as money. Actually, copper has the longest and most varied history as a monetary metal. Resistant to corrosion and malleable, copper was used by the ancient people to make utensils, hammers, knives, and vessels of great beauty, including coins. In particular, the ancient Egyptians operated on a copper monetary standard, and the first metallic monetary system of Roman Imperium was also based on a copper. It’s true that copper was not as valuable as gold or silver, but it filled a niche in the monetary system. It was used mostly by poor people in small transaction. Gold was rich people’s money and was used in international trade, silver in intermediate transaction, while copper dominated the retail trade.
Platinum’s Monetary Value
Platinum is very rare, much rarer than gold, so it became a symbol of prestige and wealth, seemingly greater than gold, as platinum is often described as rich man’s gold. However, in spite of its status, platinum almost never served as money (with the exception of platinum rubles being produced for a while until the rarity of platinum was realized), in contrast to gold, silver or copper. The reason is simple: platinum was discovered and described not earlier than in the 18th century. Moreover, it has a higher melting point than other metals, which is useful in the industry, but made the minting of coinage much more difficult. Platinum is also not diversified geographically, as about 73 percent of its production comes from South Africa. And its stock-to-flow ratio is lower than in the case of gold or silver, implying that platinum is mainly an industrial metal used in the automotive industry. This is why although gold and silver may one day emerge as money again, this is unlikely for platinum.
Palladium’s Monetary Value
Similarly to platinum, palladium was discovered so late, that it did not generally serve as money. It also has a higher melting point than other metals, while lower stock-to-flow ratio, and it is not diversified geographically (South Africa and Russia dominate the production). However, it was also sometimes used in coinage – and some of these palladium coins were even used as money in Russia.
Bitcoin’s Monetary Value
Bitcoin is not a precious metal, obviously. However, it was invented as a kind of a digital gold, and the whole system aims to imitate the gold standard (we have miners and the supply of bitcoins approaches the fixed sum of 21 million). Although Bitcoin was created as an alternative to fiat currencies, it still has not reached the status of money. It is a medium of exchange, but because of its volatility it’s has not yet gained a common usage. To be a money, a good has to be also a store of value and a unit of account – also in some sense, Bitcoin fulfills these functions, the wide price fluctuations puts its monetary value under question. Bitcoin (or another cryptocurrency) may become money one day, but it’s still the matter of the future. It’s a very recent invention, while gold has thousands years of proven track record as money.