The Switch to Paper Money: Why Gold and Silver is No Longer Circulated

Gold CoinsHave you ever wondered why practically all modern societies switched to paper money instead of using gold and silver coins? Gold coins were the standard of the ancient world all the way to the medieval era. Minted out of precious metals, this type of money persisted for hundreds of years until people began using paper.

Paper money, as well as its electronic counterpart, is the preferred currency of practically all economies. Gold and silver do not circulate. It is not that gold coins disappeared completely as people have never stopped minting gold coins. You can easily purchase brand new coins made of precious metals from sites like Atkinsons Bullion.

What is stopping you from using those coins to buy something? After all, there are still quite a few people who are willing to accept gold for their services and products.

It is not that simple. People use paper money for a reason:

Gold and Silver Coins Have a Higher Value

First of all, gold and silver coins typically have a much higher value than their face value. For example, an American silver dollar may read as one dollar at face value, but the actual value is much higher. The value of precious metals changes depending on their demand, which is why they are not a good choice for buying products.

You also cannot receive change from gold coins as you would from paper money, as the value of the metal is highly variable. To get the value of one penny, for example, you will need very small pieces of gold. This is why people use coins as bullion instead – it stores value for hoarding, using a specific amount of gold per coin.

Taxes Bar the Use of Gold for Circulation

Taxation is incredibly complicated as it is without adding gold to the mix. The rise and fall of the market value of precious metals affect all transactions. You will have to keep track of the current value of the metals when you use them for transactions and keep them with a ledger when you file your tax returns. Otherwise, your final tax will have inconsistencies in the final audit.

Paper Money is Simply More Convenient

Paper money circulates better as it is simply more convenient – it is lightweight and easy to standardise. The Chinese have been using the paper money since 618 A.D., and by the 17th century, Europeans were using it, too. Unlike gold and other precious metals, paper money had standard denominations and was accepted by all.

It also has no other purpose beyond money – you cannot melt down paper money and turn it into a necklace. Defacing paper money in any way renders it worthless, which is why it is a better choice for circulation.