The Gold Arbitrary

 Lots has been written about the gold standard, how it was good, how it was bad, it had some fundamental flaws that prevented it from surviging for the long haul. They are as follows:
1) The rate at which one could convert from paper notes to gold was arbitrarily set and reset, based on how much money was printed and how much gold was in the vault of the treasury. As a central bank, you can print as much money as you like, with the caviat that if you print too much, you'll have to change the value at which your currency is pegged to gold.

2) It's easy to abandon the standard, the central bank just say, "nope, we're not giving out any gold anymore".  This was one of the elements that caused the great depression in the US. Since the US was selling agricultural products on the global market, and since several currencies abandoned the gold standard, all of a sudden, the labor in those countries was cheaper than in the US, which still had the standard. This caused US good to be more expensive, and thus less competitive, which lead to massive defaults and economic collapse which ended when the US abandoned the gold standard with FDR.

3) The treasury can promise the pay the same gold bar to multiple people. This is one element of the bank rush problem. If you have printed paper that is redeamable for gold, but you only have 30% of the gold listed on your paper, over the long run you'll over promise and under deliver when there is peak demand for redemptions, thus causing your currency to collapse and go off the gold standard.

4) Gold is actually quite annoying to transact in so people preferred to carry around paper notes. Gold doesn't divide easily and it's hard to make online purchases with, so really it was a bad idea to begin with but it was the best that we had at one period in time. This desire not to carry around change and instead carry around instruments that were easier to transact in, lead us to the paper money systems we have today.

Interestingly enough, gold is still the commonly agreed upon store of value, and thus, human beings have consensus that gold has value. Of all the things that humans disagree upon, we agree that gold has value or can be exchanged for value. Gold has little intrinsic value and yet the consensus gives it massive global value.

Really the most interesting thing about the gold standard is that it wouldn't have existed if we didn't have a preference to carry around lighter more liquid instruments. If people had never switched from transacting in gold to transacting in paper, we wouldn't have had the issue where the US is plunged into a recession by falling crop prices because the UK decided to abandon their peg to gold.

Fundamentally, the problem with the standard is that it can be changed arbitrarily at anytime and you as an individual don't have any control over that.Thus it's not really a standard at all, more of an ideal that governments can never achieve because they are constantly trying to spend more money in order to provide more value to their constituents than the last round of politicians.

If a digital currency could replace gold in the public consensus, and be easily divisible, would we ever need federal reserve notes?