At one time, the amount of money that any particular country could produce was directly related to the reserves of gold and other precious metals. This limited the additional production of paper money until the inventory of precious metals also increased. The purpose of this is to maintain the intrinsic value of money. Because you can exchange the same amount of gold at any time. The monetary unit is not just any number; it represents the amount of gold that can be bought at this price.
For many years, the system has not been concerned by modern policy makers. Where the government once restricted the increase of money supply on impulse, money creation is now just a matter of printing more money according to requirements. In fact, the physical printing of paper money or the casting of coins are no longer needed. As the medium of large transactions, computers are more and more necessary for the money supply to authorize the input of several additional keys.
The problem with this strategy is that increasing the money supply will not affect real property. This will only increase inflation. The principle behind this is that there is no change in the supply of goods and services, and the prices of all goods will rise, reflecting the additional currency in the market. Personally, this means that your purchasing power of money will decline. For example, if you buy 5 cheeseburgers for 10 dollars a year, you may only buy 3 cheeseburgers the next year, and you may buy 2 cheeseburgers the next year.
From a national perspective, inflation prevents countries from producing more money just to repay their debts. At least it should act as a deterrent. If the market is suddenly flooded by a currency, its value will decline. This will result in a debt service value lower than the loan value before the increase in the money supply. In order to avoid this situation, there is a recent trend of regression to the physical asset base system. If money itself has intrinsic value, it is difficult to simply print more money, which in turn will help control inflation.
Of course, from this point of view, it is impossible to completely return to the asset based system. Too much has changed in the global financial landscape. However, it is worth studying how to hedge individual and national bets by purchasing some physical assets. Gold guarantees safety, but it is not necessarily the growth level that investors hope. Real estate and strictly selected stocks will closely monitor inflation. Because the simple fact is that you can’t just print more stocks and provide dividends at the same time to keep your investment value above the inflation level.
