alt Hacker NewsI don't understand why gold-backing is required. I'm a novice.
My understanding is that a reserve currency requires fluid markets and a stable, reliable, metrics-based currency policy. It's why the Fed is so stubborn about its relatively simple policy goals: 2% inflation and low unemployment.
Partially gold backed reduces counter-party risk. Fully gold backed, and exchangeable, eliminates counter-party risk.
China appears to be attempting to reproduce what the USD was before it was free floating.
USD is currently backed by debt and nominally military might. If the US defaults then all of the US bonds held by foreign banks become worthless. That is an enormous risk which is why countries have been divesting from US bonds. If USD was still gold, as it was before 1913, if you hold your money it cannot be made worthless by a third party. After 1913 USD became gold backed bills with partial reserve. It is why USD became the global reserve currency. But, reserve requirements were reduced and more paper was produced. In 1971 Nixon removed the convertibility of paper bills to gold metal effectively stealing the gold of any nation that asked the US to hold it.
One of my favorite bits of currency trivia is that a $20 double gold eagle coin used in circulation prior to 1933 had a gold content of 0.9675 troy ounces. Twenty dollars in your hand was literally nearly an ounce of gold.