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Explained: Friedman's theory of monetarism and the gold standard

By Finserv MARKETS - Aug 1,2019
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Explained: Friedman's theory of monetarism and the gold standard

Milton Friedman, a leading American economist and statistician of the twentieth century, was a prominent advocate of free markets and the theory of monetarism. In 1976, Friedman was awarded the Nobel Prize in economics for his achievements in the areas of consumption analysis, stabilization policy, and monetary history and theory.

Friedman and the supporters of monetary theory believed that economic performance was entirely dependent on the money supply. According to the theory of monetarism, the economic health of a country can be influenced or impacted by bringing changes in money or the money supply by the central bank or a regulatory body. The key thing to note about the theory of monetarism is the belief that inflation is solely influenced by changes in the money supply.

Opponents of the gold standard

Monetarists were directly opposed to the concept of maintaining a gold standard because they thought that there were limited supplies of gold to meet the money supply. In a gold standard, the value of the currency is directly linked to the prevailing gold price and reserves. Something similar to digital gold investment where a customer can buy gold online without taking physical possession of the gold but is issued an invoice according to the prevailing market rate of gold.

Though the theory of monetarism gained credibility when the gold standard collapsed in 1972, it never took off or had much impact on economic policies. Today, the theory of monetarism has few takers because it was a failure when put into practice by other monetarists such as former Federal Reserve Chairman, Alan Greenspan, and former U.K. Prime Minister, Margaret Thatcher.

The resurgence of gold and the gold standard

The recent rally in gold prices worldwide shows that governments, as well as institutional and retail investors are showing more faith in gold compared to the U.S. dollar. Also, the popularity of digital gold investments and price stability that the gold standard offers is compelling economists and policymakers to look at gold and the gold standard with a fresh, new perspective.

Digital gold resembles a gold standard system because it is backed by real physical gold and offers a safe investment option. In the near future, digital gold powered by block chain technology may become a currency based on the gold standard similar to cryptocurrencies such as Bitcoin. It is also easy to invest in digital gold.

To kick-start your digital gold investment you just need to buy gold online without spending more than Rs. 100 and a few minutes of your time. You can purchase assay-certified, digital gold at Finserv MARKETS with 99.5% purity without worrying about storage, quality or extra charges.

How popular is digital gold in India?

With more than 80 million digital gold accounts and counting, digital gold investment is already reshaping India’s $34 billion gold market. Digital gold is not only a safe investment option for small investors but it provides a transparent pricing structure with real-time markets rates. For instance, when you buy gold online at Finserv MARKETS gold prices are updated every 5 minutes based on live market prices and customers can check them right on the website before buying.

Compare that with buying gold in a jewellery store where prices vary according to cities, states and regions, as well as stores. Moreover, you have to pay making charges while buying and also worry about storage. Digital gold is free of all the drawbacks that come with buying, selling and storing physical gold. The simplicity, transparency and reliability of digital gold are attracting small investors in hordes.

It is difficult to ascertain the validity or reliability of theories such as monetarism, however, there is no question that digital gold is a safe investment option for every investor. Today, digital gold gives every Indian an opportunity to own gold since it can be accumulated in small increments by spending a nominal amount. It is also an intelligent way to start accumulating gold for marriages or use digital gold investment to gain steady returns.

Things to know before buying digital gold

There is no doubt buying digital gold is safe, reliable and convenient but here are a few things you should know to avoid surprises:

  • You have to furnish your PAN card for single transactions of Rs. 2 lakh or above.
  • You can avail physical gold storage of your digital gold only for a period of 5 years. After this time frame, you must either take delivery of the gold or sell it.
  • There are making charges involved when you want to take physical possession of the gold. It’s called coin minting charges. However, the delivery is free

As per earlier reports, the consumption of gold in India was slated to increase by 35% from 2015 to 2020. We are already witnessing a surge in gold prices not just in India but worldwide. If the market’s sentiment for gold remains the same, digital gold investment will not just be a safe haven in times of trouble but a lucrative investment opportunity in the near future.

“Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere”!


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