This is an interesting chart showing what the price of gold would need to be in order to cover the M0, M1, and M2 money supplies for different countries – if they implemented a traditional gold standard today.
The US Dollar would have to be devalued to a whopping $87,767 per ounce of gold to cover the amount of currency in the United States (see chart below).
In other words, the price of gold would revalue (RV) by over 4,300% against the fiat dollar before being anchored to gold.
Of course this assumes that 100% of the M2 currency supply would be convertible to physical gold purportedly held by the US Treasury, which equals over 1 million troy ounces (maybe).
What is a Traditional Gold Standard?
Before the rise of today’s fiat currency debt system, many nations operated under a currency framework known as the traditional gold standard.
This system linked a country’s currency directly to gold, with each unit of currency representing a specific amount of gold held by the central bank.
The value of the currency was determined by its convertibility into gold.
Individuals had the right to exchange their paper money for actual gold at a fixed exchange rate.
What is M0, M1, and M2 Money Supply?
If you’re unfamiliar with M0, M1, and M2 money supplies, these terms represent different measures of the currency circulating within an country’s economy.
M0 Money Supply
Known as the “narrowest” measure of money supply, M0 encompasses the physical currency in circulation, including coins and notes.
It represents the total value of all physical money held by both the public and the central bank.
M1 Money Supply
M1 expands the definition of money and includes physical currency (M0) along with demand deposits.
Demand deposits are funds held in checking accounts, readily accessible for transactions such as debit card payments or checks.
M2 Money Supply
M2 includes an even broader definition of money. It encompasses M1 (physical currency and demand deposits) as well as various types of savings deposits like money market accounts and time deposits.
M2 represents money that is readily available for spending but may not be as liquid as M1.
Gold Prices to Cover Money Supply in a Gold Standard by Country
This chart provides an analysis of what the price of gold would have to be in order to cover the money supply (M0, M1, or M2) for different countries, should they adopt the traditional gold standard today.
For instance, consider the case of the United States anchoring its currency to gold and backing its M0 money supply. Gold would RV to $15,317 per ounce. The chart shows the gold price required to cover the total value of all physical currency in circulation.
Similar calculations are shown for M1 and M2 money supplies.
Sources:
- Brent Johnson, Santiago Capital
- Federal Reserve Bank of St. Louis: “What Is Money Supply?”
- Investopedia: “The Gold Standard in Theory and Practice”
