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Modern times. Modern world.

In my story it's possible for several countries (let's say USA and Russia) to basically get gold out of nothing (their prime cost to do so is <1% of current market price and can be made lower, but is not zero).

It's not possible for other countries to get access to this technology by any means.

USA declare that now they now support gold standard again and freely exchange dollars for gold bullion. Russia thinks about doing so but in future and start make. Russia and USA have to coordinate policies on this issue on at least some level.

Same process can be used to produce other precious metals / gems.

Consequences to world economy in short term? Especially consequences to other countries

Clarifications:

  • A lot of people (especially in Arab countries / China) say that dollar is not backed by something of value and it's better to checkange . Now it is backed.

  • Very small number of people knew that supply is essentially unlimited / how exactly this work. Even them can't get 'a little for themselves'. World at large just knew that U.S. Department of the Treasury announced that Federal Reserve will happen (Federal Reserve got to perform actual exchange and store gold).

  • assume that REAL source of gold is direct energy-to-matter conversion + essentially unlimited energy source. 'Gold standard' idea was suggested by one of USA advisors to who have direct control over process.

  • Assume that even when others will find out about whole thing, they can't dublicate it themselves. Just can't.

  • Assume that produced gold can be made indistinguishable from natural if needed (same isotopic composition).

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closed as too broad by sphennings, Vincent, L.Dutch, Ash, Azuaron Nov 20 '17 at 14:52

Please edit the question to limit it to a specific problem with enough detail to identify an adequate answer. Avoid asking multiple distinct questions at once. See the How to Ask page for help clarifying this question. If this question can be reworded to fit the rules in the help center, please edit the question.

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    $\begingroup$ And how is the described situation different from the current where the U.S.A. supports the "dollar standard" and it can make unlimited amounts of dollars with minimal cost? Please explain why changing the name "dollar standard" with "gold standard" would have any impact, because to me it looks like a cosmetic search and replace. $\endgroup$ – AlexP Nov 19 '17 at 9:20
  • $\begingroup$ What do you mean by it is possible for countries? Who exactly can do what? The president of the United States has found a way to make gold himself? $\endgroup$ – Raditz_35 Nov 19 '17 at 9:26
  • $\begingroup$ A lot people says dollar is NOT backed by something of value and it's better to replace it at least for some transactions with 'something of value' (gold dinar, etc). Well, now dollar is backed by 'something of value'. Also, very limited number of people knew that there are no limits at all. World just knew that USA reintroduced gold standard. $\endgroup$ – Vikarti Anatra Nov 19 '17 at 9:28
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    $\begingroup$ @VikartiAnatra I don't mean to be rude but I think you should consider doing a bit of research on basic economics. One of the main "advantages" (sometimes a disadvantage though) of representative money is that it's difficult to cause inflation/deflation, the economy becauses generally stable. In your case this is not the case since gold can be made freely out of thin air. $\endgroup$ – AngelPray Nov 19 '17 at 9:44
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    $\begingroup$ This question has nothing to do with worldbuilding so much as basic economics. $\endgroup$ – elemtilas Nov 19 '17 at 15:44
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Letting aside the two (big) problems with the setup:

  • Feasibility of project; as-is it's almost impossible; transmutation might be reachable some point in the future, surely not nowadays.
  • Practicability of medium-long term of "secret method" in a scientific discovery.

The effects are very simple:

  • Today's moneys are all "free-floating", i.e.: they are backed up by "belief" they are backed-up.
  • Return to a "gold-parity", beside a very short-lived rush (in the hope to force US to back out from "parity") won't change much of real money exchanges.
  • Gold would completely lose its power as "refuge currency".
  • It is very likely the "secret" would leak out (or will just be inferred: fact is US has unlimited gold source, whatever it is).
  • Gold will start being used as a "normal building material" and people would devise a different (not "replicable") refuge currency.
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The problem here is that the premise of this question is that economics is based on money; it isn't. Money is a measure of the real focus of economics - production.

The simple fact is that the Gold Standard reflected (at the time) the time and energy that getting a finite and useful resource out of the ground cost the USA and other countries for that matter. Gold 'production' or supply was always limited because it's rare and (mostly) under ground. That means you have to find it, dig it up, and sell it. Because of the many uses for gold, demand for it is always higher than the supply. This is in part what makes it a great commodity for value growth in investment.

If you can produce as much gold as you want for next to nothing, all that would happen is that Gold would lose its value, and fast. Like I've already stated, currency (money) is just a standard for measuring one type of production against another. So, if making Aluminium (say) is just as hard as it always was, then the cost of an aircraft (for example) would remain relatively static because the small amounts of gold required to build an aircraft (mostly in the electronics) would be much cheaper, but the bulk of the aircraft would still be built in a metal that is relatively harder (now) to manufacture and would retain its relative value.

The parallel here is what happened to Germany after the Treaty of Versailles; they made the mistake of just printing enough money to pay off their debts, without realising that it would generate hyper-inflation making their money worthless because no-one was trading it any more. In this case, it wouldn't do it for US currency, but it would make gold worthless instead because there would be a massive supply that would ultimately outstrip demand.

Bottom line; even if the US or any other country COULD do this, they wouldn't because it would destroy the value of gold, and they have a lot of money invested in that resource that HAS to maintain its value to support the wealth of the economy.

Ironically enough, this is why Blood Diamonds are an issue; the legitimate diamond miners sit on a wealth of diamonds and only extract / release enough to meet the global demand and preserve the price. So, if illegitimate miners can extract them in any quantity, they can sell them for less and undermine the global market.

All you really have to do with commodity questions like this is look at supply & demand as a ratio; if supply goes up and/or demand goes down, the price drops. If supply goes down and/or demand goes down, the price goes up. Currency is ONLY affected in such instances if it is the commodity being traded, which in this world of globalisation it often is. But to answer your specific question, if the US can create cheap gold, no-one in the international (or even US domestic) marketplace is going to trade currency for a commodity that's going down in price, any more than they'd buy currency or shares if they were plummeting in value. Not unless they know (or believe) that the market will bounce back, which in this case wouldn't happen because cheap gold is now a technology.

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Such a move would have very significant effects. Despite being out of fashion and looked down upon as a “barbarous relic”, many countries still have huge amounts of capital in gold reserves as a throwback to time when we actually had a gold standard. The gold market is also very large especially the gold futures market which is larger than the physical market by a couple of orders of magnitude. The net worth of gold traded (including futures) is around 22 trillion dollars per year. Destroying this market would give the world’s financial markets a heart attack.

If the US and Russia were responsible with the way they handled the situation there need not be any change. But what’s the chance of that? Virtually nil as it would be in any other country. The temptation to take advantage of the situation would be overwhelming.

Rather than trying to keep a fixed exchange rate buying and selling gold as appropriate (a proper gold standard) they would make too much of it and its value would fall. This would not be helped by rumours that the Americans had a secret mine of almost unlimited extent (or whatever the cover story was). At some point the bottom would fall out of the market. This would remove a significant part of many countries financial reserves.

The actual cost of production of this synthetic gold would be important, because market forces would sniff it out. So assuming the cost was say \$10/oz (which is less than 1% of its current value) that is where the price would end up. After such a dramatic shock to the market and such an increase in supply, gold would find a lot more uses in industry and a lot less in finance.

All gold and silver mines would close as would all other rare metal and gem mines (if they can be just as easily made). This would bankrupt a lot of countries such as South Africa and many others. It would also decimate the mining industry.

That said at \$10/oz, 32,152 oz/ton and 19.32 ton/cubic metre and \$6.2 million dollars/ cubic metre, so gold is still a valuable resource, but it would be very cumbersome to employ as a standard at that value. It would be similar to using silver today. But it could still be made to work, the huge ingots would be difficult to steal and could be housed in lower security safes. Transport between countries to pay debts would have to be via ships.

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What would happen? Probably the same thing that happened with diamonds. Natural gold would be still as rare as it was, and the manufactured gold would be for electronics and industry in general.(if the information would be public).

If the government managed to keep this a secret, then people would ask, where is this gold coming from? SO there would need to be some kind of coverup... Government paying treasure hunters to excavate gold from spanish ship-wrecks and then manipulating the numbers, fake international transactions, fake gold mines in desolate locations, etc.

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  • $\begingroup$ Synthetic diamonds are well recognizable from natural diamonds. $\endgroup$ – L.Dutch Nov 19 '17 at 14:21
  • $\begingroup$ Even most of the "desolate regions" on Earth can be reached easily by airplane, even small general aviation aircraft such as a single-engine propeller Cessna (which can have an operations radius of a few hundred km or more), and a sufficiently large gold mine should be easy to spot from the air. Lack of signs would be telling. Yes, you could impose flight restrictions in a huge area around the claimed location of the mine, but even then you'd still have to deal with satellite imagery. China releases sat photos of the area which shows that it's just dense forest, tundra, or whatever. Now what? $\endgroup$ – a CVn Nov 19 '17 at 15:35
  • $\begingroup$ The diamonds whole are "rare and valuable" thing is a scam run by a marketing cartel. They're cheap and common, if you want to know how cheap, try selling one. Diamonds are forever, you need to keep them forever or the market would be completely flooded with cheap second hand stones. $\endgroup$ – Separatrix Nov 19 '17 at 15:37

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