Question: “Ndubuisi, if a unified paper currency cannot save Africa, what about a paper currency backed by gold? Of course, I am an advocate for production as a veritable means of economically improving Africa. However, I will appreciate your answer”.
My Answer: In our modern global economy, using gold to back any currency in a free mercantilist economy (you are better by increasing export and trade) is an illusion. The US has about 8,133 metric tons in the American gold reserve which comes down to about $500 billion. Simply, if you melt all the physical gold in America, it is not worth up to 25% of the value of Apple Inc. At a deeper level, Apple does more for the United States than all the gold in the bullions, because markets have priced Apple more!
Globally, in all forms and nature including bullions, jewelry, derivatives, private placements, stocks, etc, the value of gold is about $13 trillion. The world economy is about $105 trillion, and all the nations within the gross world product are tethered to their currencies. There is no way gold in all forms will back those currencies unless we move into the imperial age.
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Gold makes sense when you’re disconnected from global trade since you need another layer to cushion your currency. That was what Russia did as sanctions hit up, they bought physical gold, tying their currency on it, since it was isolated. That stabilized the rubble since behind the currency, there was a “2 factor authentication” layer which could prevent any direct frontal attack on the currency.
To boost and strengthen any currency, your second part is what it is: production and lots of export, especially if your currency is not the global reserve. In other words, the US dollar is earned by every other country in the world, but the US prints it, which means it can create the currency while others must sell something to earn it. That shapes what those nations do, and part of the game is to make things which other countries want. Where you fail to do just that, your currency struggles, even if you have used gold to decorate your central plate.
Other countries must EXPORT to improve balance of payment but the US does not necessarily have to do that at scale provided all believe in the strength of that currency, since it is the benchmark. Yet, believing in that currency comes from productivity and innovation within the US economy. In summary: it is only when innovation and productivity back currencies that it becomes stronger.
Africa needs to be productive; gold will not save our currencies.
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There’s no shortcut to sustainable development and prosperity, all the monetary acrobatics and gymnastics lead to nowhere, if they are not backed by real products and services that are in demand at scale. The US is not wealthy because it prints dollars, rather because it creates things that are in demand at scale.
What are we creating and who are we selling to? That is how you become strong, not by designing a beautiful currency note and declaring that it is worth this or that, based on what exactly? Economics is no sophistry.
The value of gold is much lower than the worth of currencies it should be backing, so there’s no hope there. You just have to do the hard job, which is actually the only way.