"As the price of gold reaches an all-time high and some ask us to go back to Fort Knox in considering our banking system, we need to consider some essential historical questions. Why did gold acquire such prominence in economic policy during the age of scientific discovery and industrialization? Why was gold then abandoned as a monetary anchor, and why is it now again being considered seriously as the ultimate asset? The discourse on gold and its linkage to monetary policy tends to be highly polarized. Yet proponents and detractors have not adverted to the ecological aspects of gold’s potential comeback. As we unravel the history of the gold standard, some insights about monetary discipline can be traced back to incipient ecological constraints. Variations on the gold standard and its underlying assumptions  could indeed provide a solution to the economic and ecological profligacy of Homo economicus.

. . . From an ecological perspective, the gold standard has the attraction of linking economic growth to natural resource constraints, a linkage that has been a recurring theme in much of ecological economics discourse (Read “The Real Price of Gold” from National Geographic Magazine). However, the environmental impact of mining gold is so intense that any support for resurrecting the gold standard is summarily dismissed by many activists. For example, each ounce of gold produces 30 tons of waste, and the US EPA estimates the cost of cleanup for existing metal mines to be around $54 billion. However, it is important not to conflate gold mining with the gold standard in terms of the discussion of sustainability.

Given the durability of gold and its ease of recycling, the gold standard can in principle be maintained without having to mine more gold. Furthermore, if gold is being used as a reserve in and of itself, the main issue of consequence is property rights over the gold. If there were international consensus on the global gold reserves still in the ground, then trade and ownership of such reserves could also be handled through an international treaty system that regulates ownership of gold reserves, rather than through physical extraction. For example, if the world’s total gold deposits could be centrally certified and shares issued for buying these reserves, the same purpose could be served as stockpiling gold in a vault.  In other words, a nation’s gold reserves could remain “stored” in their natural underground state, rather than being mined, purified, and deposited in a Fort Knox-like vault.

Some discounting factor could be added to account for the accessibility of certain deposits versus others and countries which have gold on their land could get preferred purchase rights to the shares similar to how company founders or employees have preferred stock options. While this would be environmentally preferable to the present system of mining and storage, ecological economists would be right to ask: why not simply anchor currency to some other metric of planetary carrying capacity which could be considered in the same way?  Perhaps a “leave it underground” approach to gold could be a first step on the road to considering more ecologically benign means of storing and measuring “wealth.”

Read Professor Ali's entire article in the National Geographic's News Watch.