Banking 1 | Money, banking and central banks | Finance & Capital Markets | Khan Academy

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Introduction to how banks make money and the value they (potentially) add to society. Created by Sal Khan.
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Finance and capital markets on Khan Academy: We all use money and most of us use banks. Despite this, the actual working of the banking system is a bit of a mystery to most (especially fractional reserve banking). This older tutorial (bad handwriting and resolution) starts from a basic society looking to do more than barter and incrementally builds to a modern society with fraction reserve banking. Through this process, you will hopefully gain a deep understanding of how money and banking works in our modern world.
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[@bobsieshow]

its nice to have someone who knows how to explain all this confusion, i mean the fractional banking system and how it really works in lay mans terms

[@TheDavidlloydjones]

Sal Kahn is bright and knowledgeable -- but what really counts is, he has ver-ree sound judgement.

[@shushanto]

It's not a fractional banking "system". Fractional reserve lending is simply how banks work. There aren't really two (or multiple) ways it can work. That's sort of like calling breathing a "system" of respiration. What would be the alternative?

[@kadenstimpson3167]

@@shushanto there is only one organism that doesn't respirate at all, but it's out there

[@umeokwechikwado]

@@shushanto do you need guidance and this?

[@Coliekokker]

Full Reserve Banking System@@shushanto

[@michaelpisciarino5348]

Bank 🏦 0:20 Savings 1:04 Entrepreneurs (projects/investments) 2:18 Gold “it’s pretty” 3:18 Goods and services and payment for those. 5:30 Balance Sheet 1 million to build a bank (solid safe Greek Temple looking building) 10 million invested 9 million in loans (charge interest to bring in more money as interest income) 1 million left on hand in case people want their money back

[@oraqol]

Go, Sal, go! If only Congress had viewed your Finance and Credit Crisis series, that bailout bill would never have been passed. Are you taking requests? If so: Programming and Vector Analysis! Hell, just teach us a whole g0ggdammed engineering curriculum!

[@johncharles3907]

Gold is actually used in many computers, and is very good as transporting electric currents!

[@landonkincaid2602]

I was just about to say that gold is used for Tech

[@grigoriyefimovichrasputin7897]

Cool fact

[@krabbykrabby8818]

Never knew this🤯

[@rock3tcatU233]

But the industrial demand doesn't justify the current inflated prices, most of the price of gold is based on speculation.

[@TheDavidlloydjones]

Yup. Also iron, lead, silicon. Lots of other elements, too...

[@jingwalk]

There are much better videos out there explaining how banking works. I would recommend searching on 'Money as Debt' and 'Money as Debt II"

[@InstTaxSolutionsLLC]

It's always great to watch these videos as they are always an educational experience. Many people only have experience with their banks through checking, savings, or some retail investment products. This video shows that there is so much more to banking.

[@luckylui3282]

So far I have found these videos help reaffirm current knowledge and in some cases to learn something new but this video clearly needs to be updated. It provides the romantic FANTASY version of how banks operate. In reality: 1) loans create deposits not the other way around 2) ***banks issue new money (i.e. credit also known as magic digital keyboard money) when loans are issued... this is how the vast majority of money in the economy is created. Among other obvious benefits, like controlling where money is allocated, banks are the primary beneficiary of the nations seignorage 3) ***banks destroy money when loans are repaid 4) Technically bank "deposits" are loans to the bank 5) Technically bank "loans" are securities purchases by the bank in the form of a promissory note The lions share of loans by large banks today (over 80%) are NOT used for productive things like manufacturing improvements and new factories etc they are used to purchase of existing assets... i.e. real estate and securities and often for the banks own purposes. The large banks serve their respective head offices not the communities in which they operate and they rarely provide financing to small or medium size companies. Please consider using a small regional bank or credit union in your area as most of them still serve their respective communities i.e. the money they manage generally stays in and circulates within the community they operate in.

[@ZoeJane]

I just saw the site of khanacademy and watched this video by accident,and I really wanna say it's brilliant! This way of teaching is clearly and easy to understand, I love this video at the first glance. I watched the first lesson then I can't wait to see the next lesson now. When I was in school I think the learning of banking is so boring, because I don't like it. But now I found I just enjoy your lesson so much that I wanna learn more. Thank you! Thank you very much!

[@lol-rw7yd]

Sal khan is the most extraordinary teacher that I've ever seen

[@debluecat]

Khan, I admire what you have done so far. How kind you are.

[@tygmy]

Gold is only pretty and hard to counterfeit? A flower is pretty and hard to counterfeit too, but those are not the only properties of gold, not even the most interesting ones. Gold is stable, does not spoil, it has multiple uses including jewelry, electronics, medicine, optics, etc. It is arguably the most useful metal of all. One important factor in favor of gold as money is the scarcity which gives it the high value. If gold was as common as some other metals, you would see it used everywhere.

[@danielramnathsingh1076]

its 2021 and i still watch these videos

[@forunet]

شكراً على شرحك وننتظر منك المزيد في تخصص التسويق

[@hunkydorian]

I agree with all the positives -- this is what the world needs above all else. And then he annoys the listeners to the point of violence by blowing into the microphone again and again and again. Why does what might be the best thing on the web have to be so trivially ruined?

[@blitzace6289]

Geeeez! Is there anything you dont teach!? You are the man!

[@Rafael-rn6hn]

"The money we use now is not so easy to counterfeit" Except by the central bank, that is...

[@TheDavidlloydjones]

Rafael, That's slightly funny -- but don't give up your day job quite yet. You should maybe look up the word "counterfeit" in a dictionary just so you don't start believing your own joke. The stuff created out of thin air by central banks is not counterfeit. It's the real thing and it has real value. not "merely because people believe in it" but because it performs genuinely useful functions, enabling the creation of wealth and security for real people in the real world.

[@brettolson9544]

David Lloyd-Jones “Wealth”, “Security” lol

[@TheDavidlloydjones]

@@brettolson9544 ??

[@Rafael-rn6hn]

​@@TheDavidlloydjones No, no, I wouldn't dare to call myself funny in your presence. Argument from dictionary is bottom of the barrel of bad arguments. In fact, it's not an argument at all, unless you literally only want to discuss semantics, maybe. Otherwise you're literally saying you'll let some institution arbitrate what thoughts are correct and which are wrong. Words exist to convey meaning. As long as you understood what I meant, it served its purpose just fine. Even if some person disagrees with my usage or understanding of it, they can stuff it for all I care. Honestly I'm just beating a dead horse here, for how bad of an 'argument' that is. As for whether the USD is useful or not, so what? Counterfeited notes are useful too (wink, I'm using your favorite definition here). That is, until it collapses due to the rampant expansion of the monetary base. What's your point? That literally means nothing. By the way, when the Roman empire debased their own coins again and again, that wasn't counterfeit either right? After all, they were the authorities then, so who'd use critical thinking to look past silly titles and call things for what they are. When the empire does it, it's standard, fair coinage, foolish peasants! Hahaha, sorry, for the essay, I just had too much fun here. By all means, do split hairs and call upon definitions to try and draw distinctions that don't exist or matter.

[@TheDavidlloydjones]

@@Rafael-rn6hn I don't intend any "argument from dictionary." There's nothing to argue about: you're using the word "counterfeit" incorrectly. Money made by central banks or treasury departments is money in the respective countries where that's how money is created. You might also want to look up "inflation," a useful concept -- about which your ranting may sometimes be justified.

[@ar2de2em2]

In Japan they once used RICE as money. Like Britain, Japan was small, isolated and working with limited metal resources. So people used to trade with notes called "koku" that promised the bearer one years supply of rice from the lord's store. These notes were usually issued to soldiers as payment for their services but quickly came to be used as money by anyone who trusted the lord. Now I'm sure you see the opportunity to promise rice that hasn't been harvested yet. Let us pray for fair weather.

[@yassirabou]

MBA professor will explain this so hard in one month. Here in just 11min I just understand how banks work

[@Nautilus1972]

And remember that they lend out much more than that. Wall street derivatives allow people to bet on markets falling, the people who have the power to collapse those markets are their biggest investors. Increase money supply = boom. Decrease money supply = recession. All recessions are deliberately caused by the big banks. This is basic economics.

[@ar2de2em2]

Another... "The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks." - Lord Acton

[@Jere616]

Thanks for the clear and easy explanation. Many people probably never thought about why a bank gets started.

[@Angelofrock09]

Thanks. Taking this class now and want to just get a B at this point and move on. Like that you keep it basic, I don't necessarily want to be an economist, but the entrepreneur example did peak my interest.

[@quityojibbajabbaa]

i swear this guy knows everything

[@Ambiview]

I think that everything has a price and that money can be very deceptive. Over time, money has become the driving force behind our decision-making, but is just a mirage that we think is more valuable than it actually is. It's really interesting to think about how money has evolved over time from things with a practical purpose to the digital currency that we have today. If people truly knew the true purpose of money, then I think they could possible change their approach to life. I recently released a video that examines the evolution of money, its creation and true purpose on my channel. It expands on some of the ideas that you talk about here. Great job and keep up the good work!

[@poeticramblings3642]

blown away.

[@stutek]

Gold has some usage in microprocessors and medicine, but it is true - gold is mostly used to make vanity items. So we have a pricey, but overvalued gold. I am about to watch whole series, to refine my time bank idea. TY for sharing the knowledge.

[@ar2de2em2]

Now here's the interesting thing about that quote... it comes from Ben explaining to the Bank of England directors his ideas on why the colonies were so PROSPEROUS!!!!!!!

[@soVun]

COMPLETE AGREEMENT WITH THE STATEMENTS STARTING AT 2:30. Both gold and fiat have their strengths and weaknesses. I hear a lot of the same fallacies.

[@lunikmarty]

For ListenTOOthers : Of courses you need deposits for create money ... but the creation of the money is allow by the initial deposit of "bankers" in the central bank. Fractional Reserve System works with the this initial deposit ... not with the customers deposits.

[@ar2de2em2]

Nice one. It reminds me of the wizard's first rule... People are stupid! Here's a similar quote (from a banker)... "I am afraid that the ordinary citizen will not like to be told that banks can and do create money. And they who control the credit of the nation direct the policy of governments and hold in the hollow of their hands the destiny of the people." - Reginald McKenna, Chairman of the Board, Midland Bank

[@xXvolhvXx]

That's one thing I definitely agreed on with the Occupiers. The Emergency Economic Stabilization Act was toxic to the free market.

[@tropicalmist999]

Hi Sal, would you do a video on the logic behind increasing oil prices in the west in relation to turmoil in the middle east. It's extremely relevant today and would be an asset in your video collection. Thanks.

[@dlessandllow8545]

Great tutorial, thank you for this video.

[@greenflower512]

it's a incredible video, how can you put all this complicated definitions into quite simple things. Thanks u a lot Khanacademy

[@NLBurnie88]

@MsAllahhuakhbar You're right. Islamic banking has became the largest growing financial industry since years

[@ananiasacts]

I have an idea for fixing congress. I think we should have a system where the candidates for congress spend a term or two as evangelists in a structured forum where they compete with each other to explain the issues before the actual congress to us and recommend how much we should care about them. We are given points to spend supporting or opposing the issues we care about. The candidates could then be rated on how well their lobbing efforts corresponded to the way we spent our points.

[@8299naresh]

hmmm....... Now i got it. Well,you explained me better than Khan did.

[@americanscholarsoftruthand5940]

There is an error in this video. The bank is not lending its customer's deposit its creating new money as loans and adding it to its deposits.

[@vorosgy]

He explicitly said they are using gold. The bank cannot create gold.

[@stefandragomir6213]

Gyula Vörös It doesn't matter if it gold or paper or dog shit with paprika. The bank doesn't lend any money, only claim checks on money (promises to pay, IOUs) who basiclly work like actual money.

[@vorosgy]

There is no fundamental difference between "actual money" and "IOUs that work like money", because anyone can redeem the IOU any time. In fact, fractional reserve banking works the same when they do not use IOUs, only actual gold. Have a look at the another video from this channel on the subject, "Banking 3: Fractional Reserve Banking".

[@stefandragomir6213]

Not everyone can redeem their IOUs at the same time, because there is not enough fiat money.

[@vorosgy]

That is correct.

[@mavallarino]

Because the investment banks were convinced that their models were based on "predictable" events therefore lowered their regulatory equity (or artificially increased its value). This is solely an indication of a simple banking model. When you mix the different types of banks it is nearly impossible to understand the risks. Wall Street resembled more of a (dark) hedge fund than a traditional bank, which could be acceptable but much more volatile - and riskier for the depositors.

[@kashan1685]

Lovely video..great work Salman..

[@Maniacal_Myc]

Gold is also used in computer hardware and electronics. Just so you know

[@jayita69]

I think he's showing a simplified structure to give a foundation or edifice to further topics. He's mentioned this bank is a theoretical "first bank" for a "primitive culture." Therefore, no electronics, dental, space, medical or other industries use it for this demonstration.

[@mikefattyk]

This helps! Keep them education a flowing!

[@galanoth17]

He is trying to illustrate the concept of banking in general. Doesn't have to be current banking system. This is the first video. Later on he will get into details.

[@Nautilus1972]

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -Henry Ford

[@leoinemoon2889]

thank you for basic idea for financial instruments and institutions

[@detroithaspotential]

I'm with you all the way but gold is used in a lot of gadgets and modern/advanced technology. It really might end up being our most valuable resource in the future in more than one way.

[@cesarsosa4617]

The main thing about gold is that people agree that has value and you cannot print gold out of nowhere that is why is so valuable with respect to paper money. You could mine gold, but the amount you can mine is limited which is not true of paper or digital money.

[@SocrTrump]

Yay for green pieces of paper!

[@ar2de2em2]

"In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay no one." - Benjamin Franklin

[@Ewhayeb14]

Amazing bro and to the point. thanks alot for this easy explanation

[@mariusbigb]

@kristopheraugust what exactly did you think was rubbish? he described it in layman terms very proficiently, to understand banking the way he described gold and money was enough to get the idea. Gold is valued by supply and demand, money is valued by supply and demand also (free floating currencies like the US dollar). This is all you need to know to understand this simple concept, he did an excellent job.

[@yiggytiblnibskin6151]

Idk if it has already been mentioned but there's definitely a difference between gold and dollars. Gold is far more stable as a substance than paper meaning it will last much longer before deteriorating into nothing, also gold is one of the best conductors so it actually has practicality.

[@dranfal1]

Thank you

[@xRA1D32x]

the 9 million to lend out wouldn't come out of the 10 million, 9 million dollars is created out of thin air on top of the existing 10 billion. This is how commercial banks expand the money supply. Lending is one of the two ways in which new money is created.

[@jackuy12345]

support!!!!!! bring this to school and might get students a lot of help!! cuz i am fucking tired of the boring learning style we have right now!!!! i cant learning anything from those boring teachers!!!!!!

[@Psychosmurf547]

Which is true, but that does not mean that that money is worthless. When one makes a loan, the newly created money represents either the value of the collateral or the value of the goods and services produced with the loaned money.

[@MultiHappyballs]

Wonder how you feel about gold as compared to the dollar today?

[@ananiasacts]

Here's how to fix fractional reserve banking: Require that banks remain more than 50% owned by their officers and make them, and their immediate families, personally responsible for all banks liabilities. This is fair because we (wisely I think) hold the public personally liable for bank failures. The fact that banks are a natural monopoly that enjoys such an extraordinary backing make it essential that its officers accept an extraordinary personal responsibility for that privilege.

[@MCP2012]

Not merely electrons: One must change the NUCLEUS, i.e., the proton-neutron structure---which takes considerably even MORE energy than merely "changing" the electrons!

[@outofsilent]

:) Gold is a great conductor in electronic

[@Pokerface585]

Thank you🙏

[@roland20002000]

While I think the video's as a learning curb are fantastic there are a couple of point's I feel should be made. Firstly gold is not just pretty that's is not what gives it value. Gold is desirable it is a commodity that one person will provide a service to another person in return for an amount of that commodity.

[@michaeljkirkland]

This is great! Happy Holidays!

[@ar2de2em2]

"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain." - Napoleon Bonaparte

[@Logicistix]

The thing is, the US's dollar is no longer backed by money, and I don't think we can keep using paper money because there will never be enough gold in relationship to the number of people. What will people do?

[@decameron4]

Unfortunately there isn't such a village in which everyone benefits. In this example, those who benefit are the owner of the bank and the owners of the productive investments. The workers who make the production are the creators of the riches and theones who get nothing except for the money that enables him to be in condition to come to the factory the next day. Good video though. Thanks for this.

[@ShakuShingan]

Perhaps you could make a video on the Labour Theory of Value, it is a far more logical way of analyzing these things.

[@randumbtimes3]

If you don't understand that let me explain: Say you put in the value of what is worth $191,247.46 today (which was actually $20,000 paper bills back then) into your savings in 1950 or even just put it under your mattress Then today, you take it out and look at it, its only $20,000 in paper bills. You know how much thats worth today? $20,000 Thats what inflation does, it robs the people who save their money Thats why people like gold, its impossible to inflate it indefinitely without alchemy

[@lcbreezyl]

Gold is very useful, it used in electronics and has many other industrial uses.

[@randumbtimes3]

People like gold better than paper money because you cannot print a virtually infinite amount of it. So you cant really inflate it as easily as paper money. If you put your paper money in the bank, and they inflate money, the value of your money drops. Example: $20,000 in 1950 is equal to $191,247.46 today See how much money was robbed from your savings because of inflation? You lost the value of what is today $170,000 because of inflation

[@jacobblack4732]

ppl are complaining about the errors while i just want to say thank you!

[@Waranle]

Thank you Sal

[@gamingeh]

@ooMatttyooo If it invests into something that produces (e.g. farm), then I would say it's an asset because it provides future income and capital growth.

[@james02Perry]

Very impressive. Manythanks.

[@ananiasacts]

Do you consider gold to be a better store of wealth than the taxing authority of the government? What value does anything have without the government to enforce a fair marketplace for trading it? If you don't trust the government to protect the value of its currency why do you trust them to allow you to keep your gold if it needs the money? I think we have to accept the fact that we really our more or less owned by the society we think we own simply because we depend on it for everything.

[@noobkosh]

@CaptainSkeletor I know it sounds silly but it does work. Not in today's society that everyone is a slave of money. It takes time but hopefully in decades or maybe centuries it'll happen, hopefully. that's the only way to get rid of poverty. it is too complicated to be explained in 2 or 3 lines. Just think about it.

[@fwesh1]

@unytcommsys well that is true, but for thousands of years, it didnt have a practical use, but it was always the backup for currency. That system continues today even though now its useful. Gold didnt suddenly gain value because it was suddenly useful, well it may have somewhat, but the primary reason for gold's value (present and past) is its rarity (which is honestly not a very good reason)

[@ravitheja012345]

What an explanation. Thanks

[@MoinSiddiqui]

What He says is true and very true about gold. Gold have value because made it to be... beside that it's nothing, nothing at all.

[@mangomedia8986]

***** www.kickstarter.com/projects/99signs/99-signs-you-are-not-in-the-1?ref=nav_search

[@Munakoiso]

Good point otherwise but "art" falls into the "Looks pretty" category

[@Utkarshkharb]

Capitalism brilliantly explained

[@Aelcyx]

Gold is useful for electronics and electronics research. I'd personally prefer if aluminum replaced gold for currency and jewelry.

[@BILLYtheKidster]

When government spends more than it collects in taxes, it borrows money from a central bank, and must pay it back with interest. Government never has the money when the loan is due, so the burden of this debt falls on the taxpayer, me and you. When local banks need money, they also borrow from a central bank. A $100.00 bond gets loaned out to its clients at 10 times the amount. The central bank and local banks create money out of thin air. There is nothing backing it, nothing substantial is there, but when incompetent government defaults and local banks fail, we the taxpayers must bail them all out, or face some time in jail. The federal withholding from every blue collar worker's paycheck, is not taxes, it is our weekly loan payment for this perpetual debt, a debt we did not create nor do we deserve, yet we keep feeding those parasites at The Federal Reserve, a privately owned bank, governed by a handful of businessmen, who have a stronghold on not just my country, but many worldwide nations. These men hire untold lobbyists to put pressure on Washington, to establish laws to protect their corrupt monetary system. There are more laws on the books protecting their banks and corporations, than there are laws protecting the human rights of our citizens. Banking is in the business of manufacturing risk. I say the risk is too great to allow banks and banking to continue to exist. It is time for a new global emergent society, governed by a Resource Based Economy.

[@davidboekhout18]

PREACH!

[@Orderofmerchants]

Debt Securities - Corporate Bonds Bonds are promissory notes, IOUs if you will, issued by a corporation or government to its lenders. They are usually issued in multiples of $1,000 or $5,000. The standard, or par, is $1,000. The bond indenture specifies the amount of interest to be paid at intervals, over a specific length of time and the principal, (or original loan amount), to be repaid on the maturity date. A bondholder is a creditor; a shareholder is an owner. -Investopedia

[@moad1000]

Thanks a lot! I really learned much of this of video( I usually feel an idiot when it comes to money&math)

[@Wildboy789789]

im starting a bank :) thats a great way to make 300k and help the world and myself

[@ar2de2em2]

"The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve. Their common characteristic is obviously their sordid avarice." - Aristotle

[@JuteTwine]

Actually, it's almost certain that the banker under those conditions would charge depositors for the service of storing their money, just like you would pay for any other type of warehouse storage. So he wouldn't pay interest (7:29). He faces contraints like overhead (durable building+vault, security, capable accountants and lawyers) and must avoid a bank run at all costs, unless he has some side deal with politicians to protect him from irate creditors. The idea of getting paid by the bank to hold your money appears to be a phenomenon of a fiat currency systems (which use funny money) with fractional reserves and government bailout schemes.

[@JuteTwine]

Notice that the banker could give out receipts for deposits of money metals (gold, silver, copper). These would be traded in the public as paper money.

[@thepiperreport8198]

I thought you were going over fraction reserve banking in a different video? I wouldn't have watched the whole thing if I'd known you were discussing it now.

[@krabbykrabby8818]

I'm not saying I'm a pro or anything but gold is more then "pretty" its steadily goes up in value and is a good resource to build wealth and back up currencies. Also countries buy most all of the gold produced in their region bc it helps them build wealth

[@ypey1]

Hey sal, where can i pay my contribution to this lecture?... great work!

[@christopherwillson]

He doesn't write with a mouse, he uses a type of touch pad that reads the movements of a pencil so he's making drawing motions on something that looks like a touch pad that regular laptops have but then bigger.

[@temujoe]

Just stumbled upon this through your imaginary numbers vid, great stuff, keep it up =)

[@8299naresh]

Hey what about Education Loan? Banks do not put interest on Education loan. Is d Bank doing some kind of Philanthropist work?

[@user-hp9eg3gf6s]

Gold is useful actually woth electronics in the modern world.

[@omgiheartpie]

knowledge should be shared, not labored and enslaved for.

[@supercarrot3000]

@mikefattyk Agreed, money is a BIG problem.

[@kcowan2000]

I want to set up a web site that provides all the banking topics in order, Is there a shortcut to do that?

[@David.R.D]

What you said about gold, that it's 'just pretty' is not true at all. It has MANY applications in electronics, computers, dentistry, medical purposes, space travel, status symbols (jewelry), glass making and gold gilding (gold has the highest malleability of all metals). I'm watching this to get some more perspective on both the monetary system as well as the banking system (which I still think is a major scam today), but what most people don't seem to get is that a gold standard or any other way of backing a currency is crucial when it comes to currencies. Thousands of fiat monetary systems have failed throughout history, they never workout out, they always crashed back to zero. Do your own proper research! I would appreciate any feedback on this by the way :)

[@bkboggy]

I was just about to post this and saw your reply. Well said. Gold is an incredibly useful material. On top of that, a brick of gold was worth a lot and is still worth a lot, but currencies change, just like you've mentioned.

[@Nanofuture87]

Other than jewelry, the demand for gold from those other applications is essentially negligible compared to the speculative value from people buying it to serve as a store of value. All of it put together only makes up around 10% of gold buyers.

[@The_Ballo]

***** What is jewelry but something saved to maintain its value and potentially trade in the future? Jewelry without resale value is worthless. It's money. Fully 2/3rds of gold is used for money, and only 1/3rd industrially, and until you can manufacture gold via cheap transmutation it will always be useful as a money (as opposed to all this worthless paper stuff)

[@TheDanRocha]

Yes, gold is not 'just pretty', and that's precisely the point why a gold standard is a bad idea. The price of having gold buried in a vault 'anchoring' a currency is that you are not using it in electronics, jewelrey, and all other products that actually need it. You limit the supply of raw material for final goods, therefore they get more expensive. A currency does not need a tangible asset backing it at all. The dollar does not for some decades, and it is still the most trusted currency in the world. For 2 reasons: (1) In crisis government may always refuse to hold the standard (as has happened throughout the XX century). (2) The point of a gold standard is that you don't want government to print money as it pleases (either with an actual print, or nowadays virtually). A law regulating the growth of 'money supply' would have the same effect, plus it would still allow monetary policy to be executed.

[@The_Ballo]

TheDanRocha Money has utility as well, and the qualities of gold make it very good for this purpose. Everything you say about the dollar could have been said about the pound sterling prior to 1914. You would have been a fool to trust it soon after. Expecting the body in charge of passing laws to maintain a law restricting its own power is even more foolish.