Recently the unemployment rate in Canada (13.0%) and the United States (14.7%) has hit an all-time high since 1984.
And it’s no wonder why! So far in 2020, we’ve seen a world-wide pandemic, oil prices fall into the negative, a fire burning across all of Australia, an Ebola comeback, and country-wide looting and riots in the streets, (mainly in the U.S). And it’s only June!
Many politicians have come out supporting the re-introduction of the Gold Standard. What this would mean is that your dollar bills would be backed by gold, instead of it being worth something just because the government said so. It would also mean that the government wouldn’t be able to add more bills into circulation without an equal amount of gold being mined, which many believe will help to reduce inflation. So, is it a good idea? Not really.
Mainstream economists are overwhelmingly against a return to the Gold Standard. The most dramatic episodes of inflation and deflation occurred during the time that the U.S used the Gold Standard. When the economy goes down, people tend to hoard gold (alongside essentials), and this would restrict the government from adding more money into circulation to help combat that, making a bad situation worse.
Many even warn that if we had used the Gold Standard during the recession in 2008, that we would have ended up in a depression due to the government being unable to respond by adding more money into the economy to combat the situation.
But even if we decided to go back to the Gold Standard, it would require a tremendous amount of money and resources to produce all the coins that we would need. Canada currently has no gold left in reserves as the federal government sold it all off, but we do have plenty of gold mines. However, mining it all is no easy task, and would cost billions of dollars to do so and this is something we would have to consistently do if we wanted to add money into the economy, something that is unlikely to be seen favorably by many.