Since a couple of decades, the paper money in your pocket is no longer backed by gold bullion in the national reserve’s safes. It is instead backed by the government’s assurance that the printed paper is accepted currency for taxes.

The value of money is established by governments, or to be more precise: by central banks. This allows central banks to control the rate of inflation and thus maintain economic stability. A growing group of people however are advocating a return to the gold standard, where every Euro and Dollar represents an equal value in gold.

Digital currencies
With the rise of the Internet, supporters of a renewed gold standard have found a new way to realize their ideals: digital currency. Digital currency is an online currency that can be traded between online bank accounts. Digital currency can in theory be entirely independent of any national currency or regulation, though in practice governments have successfully sought control over the trade of digital currency once they became aware of its potential. Last but not least, digital currency can take the form of fiat currency, like dollars or euros, or it can be entirely backed by gold.

E-Gold
The latter is the case with E-Gold and Pecunix. E-Gold, founded in 1996, allows people to open a gold account where the entire amount is backed by actual gold stored in bank vaults in London and Dubai. At their peak, E-Gold managed 3.8 metric tons of gold, worth more than US$85 million. Transactions between E-Gold accounts are processed immediately against a percentual fee (5% for 0.1 grams of gold to 1% for 5 grams of gold) with a maximum fee of 0.05 grams. Unfortunately, the freedom, high levels of privacy and (then) lack of government regulation made E-Gold extremely popular with criminals and money launderers. Pending the implementation of new government regulations, most E-Gold operations are at the moment effectively frozen.

Spreading the risks
Though there is a lot to say for the now common fiat currencies, there is a lot to say for gold-backed currencies as well. Should Europe and the US start printing money like madmen to finance some war or fix some crisis, Euro and Dollar notes might end up worth little more than the paper they’re printed on, and people with a little gold in stock might end up the laughing third. Perhaps the best solution is a little bit of everything; some fiat money, some gold, and a little barter. What do you think?