1.
Business community started
business in form of barter trade
2.
Due to limitation of barter
trade, the business community came up with an agreed item that represent value –
commodity.
3.
Again due to the limitations of
commodities: there are heavy, difficult to move around, the idea of receipt money
came up.
4.
How the receipt money work is
that the rich merchants will deposit their gold or other precious commodities
into a reputable vault service provider in return the service provide will
issue a receipt stating the value of precious commodities kept in the vault.
5.
The merchant pay for the good
he bought using receipt money then the seller will present receipt money at the
vault to convert into gold.
6.
The interesting part is the
vault service provider realized that a lot of sellers did not convert their receipt
money into gold, instead use it to pay for their own purchases.
7.
The process continued for years
where the receipt money continue to circulate in the market without going back to
the vault that issue it.
8.
Occasionally, some bearers of
the receipt money appeared at the vault to request for a replacement of receipt
money as it was torn or the ink faded but no one asked for gold.
9.
The vault owner start to realise
that since no one is asking back their gold and probably they have lost track
of the original owner of the gold.
10.
The idea of issuing additional new
receipt money during the waiting period to merchant that did not deposit gold.
11.
Of course for a fee known as
interest.
12.
That is how the banking
business started.
13.
The evolution in banking business
give birth to the fractional reserve receipt money concept – issue 2000 while
gold only worth 1000 – 2:1
14.
Proliferation of small banks
started to issue their own receipt money and went bust.
15.
Lead to formation of bank of England
and Federal Reserve was formed to regulate the banking industry
16.
Key regulation of central banks
is only one form of paper money.
17.
Those who control central bank
will b so powerful that control supply of money.
18.
Central bank objective is to
regulate the supply of money with long term objective of economy growth and
employment rate and policy interest rate.
19.
A critical decision severe the
link of money to gold in 1971 has changed the anatomy of money.
20.
Since then money no longer back
by gold, instead back by debt – a promise that will be paid in the future
21.
Hence, since 1971, money we use
today is no longer “money”, but debt
22.
Since then, knowledgeable folks
started to reject paper money
23.
Slowly, more and more wealth is
finding its way to gold and other commodities that has ever lasting value
24.
Gold was valued at USD30-US40
per ounce – the price was derive from Bretton Wood Agreement (1944) where US
has agreed to peg 1 ounce of gold ot USD35.
25.
This system worked well for almost
30 years – ie the gold price fluctuation was minimal but not after 1971.
26.
See chart above, gold shot up
to approximate USD180 in Jan 1974 and retreated to just above USD100.
27.
Gold touched USD700 in Jan 1980
a whopping increase from 1970s.
28.
Where is gold price now?
29.
Although USD was fiat money, the
American is so good in marketing their dollar to the whole world
30.
Gold stayed USD 250 – 450 range
for period of good 20 years (1980s – 2000s)
31.
In early second millennium
(year 2000 onwards) the mounting of US national debts and real demand from
China and India has push gold to unprecedented territory – how about USD1,900
per ounce in early 2011.
32.
It is really mind-boggling.
33.
Let’s do a quick calculation:
from USD350 (2000) to USD1900 (2011) : 540% increase in period of a decade.
34.
Why is it a fall in 2013 to
current USD1200 level?
