What Would Happen to Money Supply if We Returned to the Gold Standard?

I've got a simple question that I've yet to be able to figure out:

Instead of having gold BACKED money, as in paper dollars that you can supposedly redeem for a given amount of gold, why not just go back to actually having gold IN the currency itself, like we used to?

Obviously with the extremely high price of gold currently, you couldn't have any large or solid gold coins, but why not get rid of paper money, go to coins only, and have coins with a very small percentage of gold in them? A dollar coin made mostly of nickle or zinc or whatever, with a slight percentage of gold (1 dollars worth of gold, guess that wouldn't be much gold at all huh?)

Is there any reason why the change happened? Why did we go from actually using gold to make the currency, to having paper simply backed by gold? (before the backing disappeared all together, that is)

If the gold standard returned, then the price of gold will go up as increased demand is needed to match the currency liquidity of the market. It would make it much harder to just print of more money as there will be checks and accountability to the value of new money that is introduced into the economy. With so much of the economy digital these days there are also a lot of practical challenges in achieving this. It is a lot cheaper and easier to send an electron to balance out trade than a lump of gold.

While a gold backed currency will provide a lot more integrity into the economy, it still does not resolve the weak spot, human greed.

Originally posted by James1982
I've got a simple question that I've yet to be able to figure out:

Instead of having gold BACKED money, as in paper dollars that you can supposedly redeem for a given amount of gold, why not just go back to actually having gold IN the currency itself, like we used to?

Obviously with the extremely high price of gold currently, you couldn't have any large or solid gold coins, but why not get rid of paper money, go to coins only, and have coins with a very small percentage of gold in them? A dollar coin made mostly of nickle or zinc or whatever, with a slight percentage of gold (1 dollars worth of gold, guess that wouldn't be much gold at all huh?)

Is there any reason why the change happened? Why did we go from actually using gold to make the currency, to having paper simply backed by gold? (before the backing disappeared all together, that is)

This is a good question, it points to where this global currency system is going. Digital currencies are now the primary means of exchange, their usefulness far outweighs the benefit of switching back to physical currencies, so for daily transactions your idea does not work.

However, sovereign states and the people who live in them are finding digital currencies are # when balancing trade on a global scale. After we have traded with each other on a daily basis, every month or quarter or year sovereign entities will then settle their balance of currency accounts with moving actual gold between their geographies with all the benefits you allude to above.

This avoids the problem of trusting government to a fixed gold standard and provides the benefit of valuing currencies by how much a currency issuer is prepared to settle their debts in gold. Actual gold settlement = sovereign currency with credibility, and exposes what the currency issuer is doing through how the physical gold actually moves around the planet, every month if necessary we will know who has fiddled the numbers without years of building crises before we find out that a collapse has been building and is now bringing the global system down.

"The dollar is as safe as a bomb shelter that's rigged to blow up once everyone is "safely" inside..."
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