What is remonetisation?

Remonetisation is the restoration of a commodity, such as gold or silver, or banknotes and coins that are not money to be used as a legal tender. It is the reverse of demonetisation.

Naturally, we all understand the concept of money. For the vast majority of people, money is simply a number in a bank account that they access through a plastic card to purchase the goods and services they require. If you live in the UK, money is the British pound (GBP). This is the nation’s legal tender and can be used to purchase items within the nation’s borders. 

However, this does not necessarily have to be the case. In theory, the government could decide to remonetise gold or silver. This would mean that you would be able to purchase items with these commodities. 

So, in simpler terms, you can define remonetisation as the process of turning valuable items into money that can be used to purchase other goods and services.

Where have you heard of remonetisation?

While there are not many examples of remonetisation in modern practice, the remonetisation of gold has been thoroughly discussed. 

Unlike numbers, gold is finite. There is a limited supply on the Earth and, as far as modern science is aware, it is impossible to create any more gold. For this reason, the commodity has been described as the only true currency. 

You will typically hear discussions about the remonetisation of gold after a significant financial crisis. For example, after the subprime mortgage fiasco that triggered the global financial crisis in 2008, some started discussing the remonetisation of gold as a way to solve the problem of rising inflation and preventing the financial universe from collapsing in on itself. 

What do you need to know about remonetisation?

In theory, the remonetisation of commodities may seem like a good idea but in practice, it would prove to be rather difficult to implement in day-to-day life. The benefit of money as we know it today is in the ease of its use. A debit/credit card is effortlessly transportable and can provide access to near-infinite amounts of money. 

Could you imagine the inconvenience of carrying around multiple pieces of gold or silver in order to pay for a small latte at your local coffee shop?

While gold may be an important reserve asset that is both convertible and still protects consumer purchasing power, it fails in its use as a currency for most modern economic models. 

The only way that commodities like gold would be considered for remonetisation is if a nation’s currency became all but worthless through a process known as hyperinflation. If this hyperinflation was to occur in a major world currency, there could potentially be three possible solutions: