How is gold shared in worldwide economies?
Money is no longer backed by gold. It's backed by the faith and credit of the issuing government. A new country,say, will first trade goods for dollars or other currency, so its ownership of gold is irrelevant. Its currency will trade at a value based on supply/demand for that currency. If it's an unstable currency, inflating too quickly, the exchange rate will reflect that as well.  More than that your question kind of mixes a number of issues, loosely related. First is the gold question, second, the question of currency exchange rates and they are derived, with an example of a new country. Both interesting, but distinct processes. "You might want to read about about the Coase Theorem.  ""In law and economics, the Coase theorem, attributed to Ronald Coase, describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasian bargaining."" This is similar to what you are asking. Each country has an endowment of gold, and they must create a set amount of money to represent their endowment of gold. This will establish an exchange rate. If I have 5 tons of gold and you have 5 tons, and I print 10 dollars and you print 20, then one of my dollars is worth two of your dollars.  Thus, the amount of money is not relevant-  it's the exchange rate between the countries. If all the nations know each other's gold endowment, then we will have a perfect exchange rate. If we don't, then currency printing will vary but arbitrage should drive it to an accurate price.  Gold and diamonds are both valuable in part due to scarcity, but gold has been used as a measure of value because it's been historically used as a medium of exchange. People just realized that swapping paper was safer and cheaper than physically transporting gold, but the idea of gold as a measure of value is present because ""that's how it's always been."" Nobody ""creates/supervises"" these procedures, but organizations like the IMF, ECB, Fed Reserve, etc implement monetary policy to regulate the money supply and arbitrage drives exchange rates to fair values." I think you are asking a few questions here. Why is gold chosen as money? In a free market there are five characteristics of a good money: Gold and silver meet all five characteristics.  Diamonds are not easily divisible which is why they are not normally used as money.  Copper, Iron, and lead are not scarce enough - you would need a lot of these metals to make weekly or daily purchases.  Paper is also way too plentiful to be used as money. By the way, historically silver has been used for money more than gold. How does international trade work with gold as money (is this what you are asking with your hypothetical example of 10 countries each with y amount of gold?) Typically a government will issue a currency that is backed by gold.  This means you can redeem your currency for actual gold.  Then when an American spends 5 US dollars (USD) to purchase a Chinese good the Chinese man now owns 5 USDs.  The Chinese man can either redeem the 5 USD for gold or spend the 5 USD in the US.  If a government issues more currency then they have gold for then the gold will start to flow from that country to other countries as the citizens of the other countries redeem the over-issued currency for gold.  This outflow of gold restricts governments from over-issuing paper currency. Who creates the procedures and who supervises them in modern worldwide economy? The Federal Reserve, IMF, and Bank of International Settlements all are involved in the current system where the US dollar (see Bretton Woods agreement) is the reserve currency used by central banks throughout the world.  Some think this system is coming to an end.  I tend to agree.
This was answered wonderfully in a recent Planet Money podcast:  Why Gold?.  Here are some higlights of gold: If listening to podcasts isn't your thing, read this summary. "Because people are willing to trade for it.  People are willing to trade for Gold because: The value of gold goes up because the demand for it goes up, while the supply has been basically static (or growing at a low static rate) for a long time.  The demand is going up because people see it as a safe place to put their money.   Another reason Gold's value in dollars goes up, is because the value of the item it's traded against (dollars, euros, yen, etc) goes down, while its own value stays roughly the same. You point out Gold is not as liquid as cash, but gold (both traded on an exchange, and held physically) is easily sold.  There is always someone willing to trade you cash for gold.  Compare this to some of the bank stocks during the first part of our current recession.  People were not willing to give much of anything for your shares.  As the (annoying, misleading) advertisements say, ""Gold has never been worth zero""." Russia main reserve is Euro, Gold and Yuan. They have dumped good sums of dollar since way back. The rest of oil buyers would gladly pay russians in whatever currency they want, specially if it is non dollar. Cheap oil on cheaper currency?  Who doesn't want that?  The chinese pay their oil in Yuan. Russian gladly takes Yuan, since its the most liquid currency in pacific, not to mention china is their no.1 trading partner. "Thanks for bringing up gift economies. The ""barter-to-credit story"", as you call it, is a good just-so story for explaining our current monetary system, but it's not how it actually happened. It's important to emphasize that.  The gift economy is the original economy. It's used in small groups,bands or tribes of up to ~100 people, where you keep how much each person owes you in your head. These peoples don't have writing, remember.  The problem with the gift economy is that it doesn't scale. Once you've got more than a couple hundred people or so (basically, Dunbar's number), or too many tradable goods and services, it starts to break down. People can't keep track of their debts anymore, and it becomes harder to agree on prices.  Random aside: It's interesting to look at communism with this in mind, because essentially it's a return to something very much like a gift economy, but on a grand scale. But despite modern records-keeping and communication, it failed because we still can't coordinate such a large economy without some sort of market to set prices." Yes, the US dollar is the standard for all global trade - IMF driven  And China has been going for that title for the past decade and this is a very smart and tactical way to do it  If this goes through, gold &amp; oil might become really good place to be. The US has been in a supply run and kept the price of oil low.  Things are changing quick... It's not really about nation states, the problem is larger than that.  The West who consumes too much, faced off against the East who makes too much.  Seems like everyone's just waiting for the dollar to fail, so some new order can resolve. "The reason I don't want to get into here it is because internet debates over these things turn into an absolute shit-show, instantly.   In a nutshell, the (sane parts of) argument comes down to very difficult-to-prove assumptions about how perfectly fiat currency can/will be implemented.  - The (sane) case for gold is that it is very difficult to get into the kind of money-printing mischief that places like Zimbabwe and Argentina have got into when your currency is based on something with a finite and slow-growing supply. It's hard to print more gold.   - The (sane) case for fiat currency is that it is ridiculous to hamstring the entire economy by tying it to one arbitrary commodity with a fluctuating value and supply that does not correlate well with overall economic output.   A perfectly-implemented fiat currency, printed and ordained by a perfectly omniscient, perfectly competent, and perfectly benevolent central bank (let's call it ""God money""), is the ideal. That's pretty much axiomatic, and even sane gold-bugs would tend to allow the above, so far as it goes, including all stipulations.   In fact, someone inclined to believe in divine intervention might make a case that gold is precisely that: a hard-to-forge, easy-to-detect, easy-to-handle metal placed on earth by God in quantities just right to serve as currency.  The problem is that a really *bad* fiat currency is absolutely terrible: leads to nightmare-scenarios; people starving on one side of a fence while tons of crops are being burned on the other side because of runaway price-discrepancies, stuff like that. Again, even (sane) Keynesians will allow as much.   The problem is that the crazies, ideologues, and single-issue zealots come out of the woodwork when you start getting into this stuff, and tend to dominate the conversation (if ""conversation"" is a fair word to use). In a sense, the ""sane"" spectrum of debate boils down to an almost ideological divide:   - Whether you believe that a sort of permanent, technocratic, central-bank/currency-issuer is possible/plausible.  Because if it *is* achievable, it is almost certainly better than just tying the whole economy to the price of a single commodity. If it is *not* achievable, then it is almost certainly better to let the markets adjust and correct, however imperfectly, than to tie the whole economy to the whims and wishes of incompetent and politically-motivated money-printers. (I hope that makes sense, and that it is a fair representation of the conundrum).  The problem with making an argument is that you've got a hodge-podge of technical (and sometimes fairly complicated) nitty-gritty, plus a certain amount of starting-assumption/worldview/ideological stuff, all smooshed together, and almost all of it is very hard/impossible to ""prove"" via evidential scientific testing.   Both the technical and historical stuff have strong conflicting indicators, and it's obviously not possible to, say, set up two identical societies and let them run for a thousand years, controlling for everything but monetary policy, and see what happens.   Macro-economics is a very imperfect science. It has certainly given the world some very useful and valuable insights and axioms, but the testing methods are extremely indirect and heavily subject to interpretation: you really have only the historical record to draw on, and it is almost impossible to find examples that control for whatever variable is in question.   Macro, ideally, *tries* really hard to be science, but you're always kind of picking from bad examples when testing a hypothesis, trying to line up vaguely similar historical periods to isolate for some common factor. It's kind of like geology or theoretical physics, except with much smaller and messier data-sets. Ten thousand years from now, it will be much easier to look at the historical data and isolate for particular variables over multiple hundred-year spans across a variety of cultural, political, and socio-economic backgrounds.   For now, the peanut-gallery is chock full of questions that the experts cannot answer, and the record is full of exceptions to every rule, and a lot of it frankly boils down to worldview and ideology (with a healthy dollop of ""I'm smarter than you"" to finish the sauce).   Since I personally prefer technical questions to politics, I will leave it to others to formulate and debate those things." I think what the person meant to say is that Gold is not a one stop solution. There's nothing wrong with having Gold in an otherwise diversified portfolio but you need to be aware about the potential downsides: The problem with gold is that its value nowadays depends mainly on investor confidence, or the lack of it (actual demand for gold cannot explain the rise in value gold had after the crisis). If people are afraid the world and currencies with it will go to hell, the gold price will go up. Why? Because if currencies seize to exist, Gold will still be accepted. It can replace currencies. What many people tend to forget: let's consider the extreme example and currencies really cease to exist and all hell breaks lose. What good are gold bars at the bank, or even at home, for that matter? You'll be better off with gold coins to use in barter and to pay off marauders. But that's not about investing anymore, that's survivalism. Dear Sir/madam We are Local Village Gold Miners from Rep. of Guinea, In West African. I am a Member of the Said Community and in charge of Marketing, Advertising, communication and sourcing potential diamond and gold dust buyers, agents/brokers or partners for our mined gold dust AU./DIAMONDS. 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"In theory, the idea is that diversified assets will perform differently in different circumstances, spreading your risk around. Whether that still functions in practice is a decent question, as the ""truth"" of most probability based arguments for diversification rely on the different assets being at least somewhat uncorrelated. This article suggests that might not be true. Specifically: The correlations we note among industry sectors are profoundly and dysfunctionally high. and  Gold and silver traders have gotten too used to the negative correlation trade with stocks. This is, in fact, an unusual relationship for precious metals tostocks. The correlation should actually be zero." It is a shame that really insightful article is wrapped up in a paranoid wrapper.  It is all accurate, IMO and is basically the worldview I use when I trade markets.  Except I don't get all fixated on gold.  I see gold as just one tool out of many for exploiting the exploiters. The problem I have with gold is that it's only worth what someone will pay you for it.  To a degree that's true with any equity, but with a company there are other capital resources etc that provide a base value for the company, and generally a business model that generates income. Gold just sits there. it doesn't make products, it doesn't perform services, you can't eat it, and the main people making money off of it are the folks charging a not insubstantial commission to sell it to you, or buy it back.  Sure it's used in small quantities for things like plating electrical contacts, dental work, shielding etc. But Industrial uses account for only 10% of consumption.  Mostly it's just hoarded, either in the form of Jewelry (50%) or 'investment' (bullion/coins) 40%.  Its value derives largely from rarity and other than the last few years, there's no track record of steady growth over time like the stock market or real-estate. Just look at what gold prices did between 10 to 30 years ago, I'm not sure it came anywhere near close to keeping pace with inflation during that time.  If you look at the chart, you see a steady price until the US went off the gold standard in 1971, and rules regarding ownership and trading of gold were relaxed.  There was a brief run up for a few years after that as the market 'found its level' as it were, and you really need to look from about 74 forward (which it experienced its first 'test' and demonstration of a 'supporting' price around 400/oz inflation adjusted.  Then the price fluctuated largely between 800 to 400 per ounce (adjusted for inflation) for the next 30 years. (Other than a brief sympathetic 'Silver Tuesday' spike due to the Hunt Brothers manipulation of silver prices in 1980.)  Not sure if there is any causality, but it is interesting to note that the recent 'runup' in price starts in 2000 at almost the same time the last country (the Swiss) went off the 'gold standard' and gold was no longer tied to any currency (or vise versa)   If you bought in '75 as a hedge against inflation, you were DOWN, as much as 50% during much of the next 33 years.  If you managed to buy at a 'low' the couple of times that gold was going down and found support around 400/oz (adjusted) then you were on average up slightly as much as a little over 50% (throwing out silver Tuesday) but then from about '98 through '05 had barely broken even.  I personally view 'investments' in gold at this time as a speculation.  Look at the history below, and ask yourself if buying today would more likely end up as buying in 1972  or 1975? (or gods forbid, 1980)  Would you be taking advantage of a buying opportunity, or piling onto a bubble and end up buying at the high?  Note from Joe - The article Demand and Supply adds to the discussion, and supports Chuck's answer. "Comission is a must when doing sales. That is the best (and only good) incentive to sell more. How much you want to give all depends on margins, the salary level that is accepted in your state/country and what sellers you have (young or old).  Salary costs at 30 - 35% of total order value is normal including salary tax and all tax oriented costs around that employee.   There are 2 ways of doing it. Only high commission and fixed salary + lower commission. Even if you use fixed salary + commission you can have ""restrictions"" so they have to sell above a certain level to get that commission. That means that you don't take any risks.   An example of a salary model that I found was popular. (The numbers are just made up according to what is normal to have in Sweden). It's a step-model. If you sell for:  Step 1: 0 - $3000 you get high commission 20% of everything you sell  Step 2: $3000 - $4000 you get fixed salary of $1000 + 10% commission  Step 3: $4000 - $6000 you get fixed salary of $1700 + 15% commission  And so on.  Your weakest points are when going to a higher step. You have to change the steps so it works with your salary statistics so you have most people under a step to motivate them to go to the next instead of having them exactly above one step. As you can see, with a step model, you just put a disquise on the commission model but make it more attractive. What the seller think is that they have a fixed salary. If a seller is happy, he/she is selling a lot.    I have also had a criteria saying that if you can keep youself at 1 step for more than 3 months you will start there each month. Then it's up to the team leader to warn if that seller IS good or just LUCKY." The company will have to pay 20% tax on its profits. Doesn't matter how these profits are earned. Profits = Income minus all money you spend to get the income.  However, you can't just take the profits out of the company. The company can pay you a salary, on which income tax, national insurance, and employer's national insurance have to be paid at the usual rate. The company can pay you a dividend, on which tax has to be paid. And the company can pay money into the director's pension fund, which is tax free.  Since the amount of company revenue can be of interest, I'd be curious myself what the revenue of such a company would be. And if the company makes losses, I'm sure HMRC won't allow you to get any tax advantages from such losses.