Financial
markets have been growing steadily in terms of volume and value in recent
decades, which
acts as the lifeblood in the modern business types, as it is one of the most
important consideration for an entrepreneur-company, which all summarizes in
one word MONEY.
One of the long-standing myths
about modern currency is that it is backed by the U.S. gold supply in Fort
Knox. That is, you can trade your greenback dollars to the U.S. government for
the equivalent amount of gold bullion at any time.
Gold
seems to be back in the limelight with investors preferring the yellow metal
during the third quarter. The yellow metal did well to advance 11.1 percent to $1776 per ounce in the third quarter from
$1598.5 per ounce at the end of the second quarter. In comparison, gold dropped
3.9 percent in the second quarter. Before that, the precious metal advanced 8.6
percent in the first quarter to $1662.5 per ounce from the fourth quarter of
2011. For the first three quarters, gold has delivered a solid return of 16
percent.
At one point, and this was true of
most paper currencies in the world; the U.S. took away the government backing
of the dollar with an actual gold supply (known as leaving the gold standard)
in 1971, and every major international currency has followed suit. And that’s why the only reason for
dollar, franc, or Euro
has any value is because they have a stable system in which people are known to
accept these pieces of paper in return for something valuable. Or, as Nobel Prize-winning
economist Milton Friedman puts it, "the pieces of green paper have value
because everybody thinks they have value."
Even
though gold is no longer used as a primary form of currency in developed nations, it continues to have a
strong impact on the value of those currencies. Moreover, there is a strong
correlation between its value and the strength of currencies trading on foreign
exchanges.
The
exchange rates effect how business gets done between the countries of the
world, and will effect both travelers and traders, it’s even impact the global
trade volume throughout the world, as Qatar Central Bank which has adopted the
exchange rate policy of its predecessor, Qatar Monetary Agency, through fixing
the value of the Qatari Riyal (QR) against the US dollar (USD) at a rate of QR
3.64 per USD as a nominal anchor for its monetary policy.
Gold has a profound impact on the
value of world currencies. Even though the gold standard has been abandoned,
gold as a commodity can act as a
substitute for fiat currencies and be used as an effective hedge against
inflation.
So money doesn't have any inherent
value. It is simply pieces of paper or numbers in a ledger, but as what Lewis
H. Lapham, author and editor, said “The complex mechanisms of the modern world
depend as certainly on the faith in money as the
structures of the medieval world depended upon faith in God." So money is
the lifeblood of our life.
For Waseem Kazi Blog:By Maha D. Azzam - Oct 7, 2012
