Kind of an odd question about gold exchange rates

[Traab]

This is a bit of an offshoot about a harry potter discussion. In fanfiction one of the less common ways harry gets rich is he takes his trust vault of galleons, melts them down, sells the gold off, then exchanges it for more galleons in an ever increasing money making scheme. This works because everyone involved in magical banking is stupid and galleons are worth 5 english pounds per coin despite theoretically having like a thousand bucks worth of gold in each one. The question i wanted to ask was, how far would this have to go before it basically crashes the world wide gold market? How many tons of gold would it take to completely tank the value of gold?

[gomipile]

This is a bit of an offshoot about a harry potter discussion. In fanfiction one of the less common ways harry gets rich is he takes his trust vault of galleons, melts them down, sells the gold off, then exchanges it for more galleons in an ever increasing money making scheme. This works because everyone involved in magical banking is stupid and galleons are worth 5 english pounds per coin despite theoretically having like a thousand bucks worth of gold in each one. The question i wanted to ask was, how far would this have to go before it basically crashes the world wide gold market? How many tons of gold would it take to completely tank the value of gold?

Well:



The World Gold Council estimates that all the gold ever mined totaled 187,200 metric tons in 2017[1] but other independent estimates vary by as much as 20%.[2] At a price of US$1,250 per troy ounce, reached on 16 August 2017, one tonne of gold has a value of approximately US$40.2 million. The total value of all gold ever mined would exceed US$7.5 trillion at that valuation and using WGC 2017 estimates.[note 1]


So, if by "tank" you mean "reduce the spot price by about 50% or more," then he'd have to earn something on the order of $7.5 trillion USD or more.

Link: https://en.m.wikipedia.org/wiki/Gold_reserve

[snowblizz]

Not to mention he could sell quite a bit more "off the books" as it were to people who wants gold but might not necessarily want to let on.


Since gold sort of has "mystical value" you can probably increase the supply a fiar bit before things start to happen.

[Traab]

From what ive read gold has its value based on the london bullion market association. I suppose its POSSIBLE to go through other places, I mean there are other markets, though not as well known or accredited world wide. Which is why I was pretty sure they would notice rather fast that an independent seller is trying to put on the market as much gold as medium sized nations possess. (Bulgaria has a 40 ton gold reserve which was the random figure I tossed out, its ranked 50th in size) Which would probably cause absurd amounts of upheaval. Most of the gold mentioned is already under lock and key and not being traded so the equivalent of an entire nations reserve suddenly entering the open market is not going to be quiet. As for off the books, you could maybe do that with the first step, but when you are reaching the many tons worth, good luck finding someone who has the cash on hand to pay you hundreds of million/billions of dollars "off the record" Or enjoy spending the next 6 months going from small seller to small seller getting rid of a brick at a time.

[halfeye]

There'd be taxes, of course.

[gomipile]

From what ive read gold has its value based on the london bullion market association. I suppose its POSSIBLE to go through other places, I mean there are other markets, though not as well known or accredited world wide. Which is why I was pretty sure they would notice rather fast that an independent seller is trying to put on the market as much gold as medium sized nations possess. (Bulgaria has a 40 ton gold reserve which was the random figure I tossed out, its ranked 50th in size) Which would probably cause absurd amounts of upheaval. Most of the gold mentioned is already under lock and key and not being traded so the equivalent of an entire nations reserve suddenly entering the open market is not going to be quiet. As for off the books, you could maybe do that with the first step, but when you are reaching the many tons worth, good luck finding someone who has the cash on hand to pay you hundreds of million/billions of dollars "off the record" Or enjoy spending the next 6 months going from small seller to small seller getting rid of a brick at a time.

Well, there is a way around that. Objects of art made of precious metals are sold differently than bullion, though their value has a hard floor at the spot price of their material content. For instance, in the USA, sales of bullion over a certain dollar amount have to be reported to the IRS, whereas sales of objects of art made of gold do not follow the same exact rule.

[The Glyphstone]

Those fanfictions also always tend to assume galleons are 100% pure 24-karat gold content, which is probably the biggest flaw in the whole scheme. Even Muggle governments, let alone a banking system run by goblins, don't use pure-metal coinage - if nothing else, they're too soft and easily damaged for practical function.

[snowblizz]

From what ive read gold has its value based on the london bullion market association. I suppose its POSSIBLE to go through other places, I mean there are other markets, though not as well known or accredited world wide. Which is why I was pretty sure they would notice rather fast that an independent seller is trying to put on the market as much gold as medium sized nations possess. (Bulgaria has a 40 ton gold reserve which was the random figure I tossed out, its ranked 50th in size) Which would probably cause absurd amounts of upheaval. Most of the gold mentioned is already under lock and key and not being traded so the equivalent of an entire nations reserve suddenly entering the open market is not going to be quiet. As for off the books, you could maybe do that with the first step, but when you are reaching the many tons worth, good luck finding someone who has the cash on hand to pay you hundreds of million/billions of dollars "off the record" Or enjoy spending the next 6 months going from small seller to small seller getting rid of a brick at a time.

The whole basis of this idea would be to do it slowly. There's no other way. It won't even crash the market if you announce your 7 trillions worth of gold and who'll buy it? You'll be laughed out, and promptly ignored. Mostly due to the fear that you might actually have that gold for reals.

And having kept an eye on the thread to keep Brother Oni honest I know the people (word used losely) responsible for the wizard monetary system may have some opinions of meddling in the muggle world too.

In this case the gold market will function abit like diamonds, which are expensive mainly due to the cartel controlling supply and artificial demand.

As many art thieves have found out it hard to sell what has no real market.

Which is why you do it circumspectly in small pieces. Prefarrably not by trying to hawk stuff labelled "WIZARD COINS YES WE ARE REAL!".


Goldsmiths, pawnbrokers, gold for cash services will all be your friend here. Well experienced in taking in shade gold. Not to mention Swiss banks.

[aspi]

There are real-life analogies to this, even though the ones I know are not about gold. In many countries, the lowest denomination coin (for example a penny in the US) has more material value than its denomination. Thus, you could exchange for a lot of them, melt them down, sell the metal (often copper and/or iron), and use the money to get new coins, then repeat.

The solution to this is that it's illegal to melt down currency. So Harry should likely get into some trouble for doing this at some point.

[Traab]

The whole basis of this idea would be to do it slowly. There's no other way. It won't even crash the market if you announce your 7 trillions worth of gold and who'll buy it? You'll be laughed out, and promptly ignored. Mostly due to the fear that you might actually have that gold for reals.

And having kept an eye on the thread to keep Brother Oni honest I know the people (word used losely) responsible for the wizard monetary system may have some opinions of meddling in the muggle world too.

In this case the gold market will function abit like diamonds, which are expensive mainly due to the cartel controlling supply and artificial demand.

As many art thieves have found out it hard to sell what has no real market.

Which is why you do it circumspectly in small pieces. Prefarrably not by trying to hawk stuff labelled "WIZARD COINS YES WE ARE REAL!".


Goldsmiths, pawnbrokers, gold for cash services will all be your friend here. Well experienced in taking in shade gold. Not to mention Swiss banks.

So basically, you would have to hire someone willing to constantly travel from pawn shop to pawn shop type of place, exchange a bar or so worth of gold or whatever they could have the cash on hand for, then move to the next because being able to move that much gold, especially since its an ever increasing amount as the second step is to exchange the cash you got more more galleons and repeat, is very much so a full time job. You could probably do a circuit of america like this. Spend a week in each state just traveling to each location then moving on to the next state and then when you hit 50, come back to the start again.

But otherwise, you couldnt just dump a small fleet of big rigs worth of gold bars into switzerland and expect them to just take it. So crashing the market wouldnt happen because you literally cant sell enough gold at once to do that.

[Grey_Wolf_c]

Those fanfictions also always tend to assume galleons are 100% pure 24-karat gold content, which is probably the biggest flaw in the whole scheme. Even Muggle governments, let alone a banking system run by goblins, don't use pure-metal coinage - if nothing else, they're too soft and easily damaged for practical function.

They also wildly inflate the meaning of "small fortune". Beyond the fact that perception of the amount of money is filtered through the eyes of an 11 year old with very shaky grasp on his own needs and purchasing power of a coinage he had not seen before that day, there is the inescapable fact that he is told it should be sufficient to cover his needs for the duration of his school years. If at 11 you are told about a trust fund that'll get you through University, that might sounds like a lot to Americans because of their insane educational system, but to the British, I suspect it's more like "oh, a small amount of money, I don't need to worry about much until it's time to get a job". Not "woo, I won't have to work a day for the rest of my life".

It establishes Harry can pay for the school, and clothes, and food and even treat himself on occasion, but he ain't rich.

(Eventually he does become rich, when he inherits Sirius' money, though)

Grey Wolf

[Traab]

They also wildly inflate the meaning of "small fortune". Beyond the fact that perception of the amount of money is filtered through the eyes of an 11 year old with very shaky grasp on his own needs and purchasing power of a coinage he had not seen before that day, there is the inescapable fact that he is told it should be sufficient to cover his needs for the duration of his school years. If at 11 you are told about a trust fund that'll get you through University, that might sounds like a lot to Americans because of their insane educational system, but to the British, I suspect it's more like "oh, a small amount of money, I don't need to worry about much until it's time to get a job". Not "woo, I won't have to work a day for the rest of my life".

It establishes Harry can pay for the school, and clothes, and food and even treat himself on occasion, but he ain't rich.

(Eventually he does become rich, when he inherits Sirius' money, though)

Grey Wolf

Thats true, but even if he has something like say, a thousand gold coins, going by the general fanon assumption of it being pure gold and what not, it would only add an extra round or two due to the sheer absurdity of the exchange rates and such that they work with. Thats always been the point, the harry in the story doesnt just do it once, he does it several times, multiplying his fortune significantly each time. Each gold coin is worth less than 7 bucks american when used as currency. If it even has a GRAM of pure gold in it its worth over 39 bucks making it worth 6x as much each coin. Even THAT level of exchange rate gets absurd fast if you can exploit it. It gets scarier with every extra bit of real gold you assume is in it. If its a regular ounce thats 28 and change grams. thats 168x as valuable as gold rather than currency. A troy ounce is somewhat more at 31 grams. So its understandable that people would drool over the prospect. Even having to go through the bother of smelting it and collecting all the gold while removing any other impurities (assuming its only a small amount of gold per coin) would still most likely be well worth the cost and time invested. And yes, that assumes that there are no laws that would get you thrown in azkaban or murdered by goblins for doing it, but its almost become permanent fanon that the wizarding world is full of morons and goblins are either tricky bastards or also blind to the outside world for some reason.

[Tyndmyr]

Well, the wizard economy is quite small relative to the world economy. So, even with a somewhat higher usage of gold in the wizarding economy, I would expect them to run short on gold before the world economy so much as blinks.

Then you have a lot of folks asking where all the gold has gone, and looking at the banking folks. The goblins, of course, are quite proud of their banking system, and are not going to want to take the fall for this. Why, of course, this one lad's been making off with all the gold.

Presumably, if they discover that he's been melting down all of their coinage, they will be unhappy with the wee arbitrating Harry.

Another potential failure point is exchanging the muggle currency back into wizard currency. Frankly, most Wizards don't muck about with muggles all that often, so the need for muggle currency is rather low. You'd probably satisfy it entirely with a fairly low volume, and simply be unable to exploit beyond that limit.

In practice, the "exploit" is merely a business opportunity, and perhaps one with some problems to put into practice. It probably doesn't even rank very highly in terms of how to make money using magic.

[Grey_Wolf_c]

Thats true, but even if he has something like say, a thousand gold coins, going by the general fanon assumption of it being pure gold and what not, it would only add an extra round or two due to the sheer absurdity of the exchange rates and such that they work with. Thats always been the point, the harry in the story doesnt just do it once, he does it several times, multiplying his fortune significantly each time. Each gold coin is worth less than 7 bucks american when used as currency. If it even has a GRAM of pure gold in it its worth over 39 bucks making it worth 6x as much each coin. Even THAT level of exchange rate gets absurd fast if you can exploit it. It gets scarier with every extra bit of real gold you assume is in it. If its a regular ounce thats 28 and change grams. thats 168x as valuable as gold rather than currency. A troy ounce is somewhat more at 31 grams. So its understandable that people would drool over the prospect. Even having to go through the bother of smelting it and collecting all the gold while removing any other impurities (assuming its only a small amount of gold per coin) would still most likely be well worth the cost and time invested. And yes, that assumes that there are no laws that would get you thrown in azkaban or murdered by goblins for doing it, but its almost become permanent fanon that the wizarding world is full of morons and goblins are either tricky bastards or also blind to the outside world for some reason.

I'm not sure I would describe as fanon any such kind of absurd speculation. Maybe I'm jaded, but the only people that seem to bring this up are the ones with clear axes needing to be grind. There are names I could call them, but fans is not one of them, and thus nothing they write falls under "fanon".

As to weight, you are grossly overestimating the weight of gold coins. The dollar gold coin (https://en.wikipedia.org/wiki/Gold_dollar), minted at the height of the gold rush, was a mere 1.5 grams of gold. And this is the extreme, as far as I know, of gold content of a coin*. It also highlights the absurdity of it: it is by far the smallest dollar coin ever produced, which must have been a real issue if you wanted to carry it in your pocket. A more reasonable gold content (for, say, a coin with 5% gold, 95% copper) might have milligrams of gold content at best, and that way can have at least some heft to it.

Which really brings us to the other elephant in the room. The description of the galleons in HP suggest their weight and size are about normal for modern coins, and multiples are routinely carried around in pouches. A coin of pure gold with a 2-3 cm diameter and a thickness of 2-3 mm (i.e. clearly a golden equivalent of the 2 pound coin (https://en.wikipedia.org/wiki/Two_pounds_(British_coin))) would be ludicrously heavy, and Harry would've remarked as much, I'd imagine. Now, a reasonable conclusion would be "it's shiny, and 11-yo Harry isn't a walking mass spectrometer, so he can't tell this ain't gold", but for people who are somehow mortally offended by the existence of the HP books and must find something, no matter how straw-grasping to complain, well, logic be damned.

But I don't want to derail this into yet another "HP is not as dumb as haters would want you to think" thread, so to bring this back to a more in-spirit footing: gold coins are terrible units of currency. Gold, in general, is a very poor medium of exchange, which is why no-one has seriously used it in recorded history. It is too soft, too heavy and too rare. Silver may tarnish and copper is "base", but at least there is enough of both that the coins produced are usable. Any time someone suggests coins made of pure gold, the reality is that they are either too expensive and heavy for every day use, or they have the gold content of sea water (or, as the US discovered, have to be so thin and small you wouldn't hear them hitting the ground if they fell from your pocket).

Grey Wolf

* meant for every day use. I am aware that Europe had Venecian gold coins for major trade transactions and the like, but I'm fairly certain no-one ever bought a loaf of bread with one and got some change back, like we do in D&D.

[hamishspence]

Which really brings us to the other elephant in the room. The description of the galleons in HP suggest their weight and size are about normal for modern coins, and multiples are routinely carried around in pouches.

It's implied that they're rather large in book 4:

Mr Roberts: "I had two try and pay me with great gold coins the size of hubcaps ten minutes ago."

I assume that's hyperbole, but that they are also a bit on the large side compared to '90s British coins.

[Grey_Wolf_c]

It's implied that they're rather large in book 4:

Mr Roberts: "I had two try and pay me with great gold coins the size of hubcaps ten minutes ago."

I assume that's hyperbole, but that they are also a bit on the large side compared to '90s British coins.

Those are foreign coins (from African warlocks, IIRC), not actual galleons though.

Grey Wolf

[halfeye]

Those are foreign coins (from African warlocks, IIRC), not actual galleons though.

Grey Wolf

I always thought of galleons as like the Discworld's rhinu but a bit bigger. According to some theories, there's a lot of gold in the core of the Earth, it just tends to sink to the bottom, rather than float to the top, so up here it's rare, but if you had a way of getting at it, e.g. magic, there's really quite a lot to be had.

[Rockphed]

Those are foreign coins (from African warlocks, IIRC), not actual galleons though.

Grey Wolf

Africa, you say? (https://en.wikipedia.org/wiki/Musa_I_of_Mali)

[hamishspence]

Those are foreign coins (from African warlocks, IIRC), not actual galleons though.

The novel didn't say. Three African wizards are seen later, cooking over purple fire - but they're not specifically tied to the coins that had been offered to Mr Roberts.

The wiki, at least, assumes it was Galleons, though it's not stated outright in the text.

http://harrypotter.wikia.com/wiki/Roberts

[Grey_Wolf_c]

The novel didn't say. Three African wizards are seen later, cooking over purple fire - but they're not specifically tied to the coins that had been offered to Mr Roberts.

The wiki, at least, assumes it was Galleons, though it's not stated outright in the text.

http://harrypotter.wikia.com/wiki/Roberts

The Potter wikis are terrible sources of evidence even at the best of times. As you point out that is indeed a massive assumption they didn't even bother acknowledging. Leaving aside the constant obliviation that is rendering practically brain dead, and the possibility of exaggeration, he is just done speaking about foreign wizards, IIRC (I miss the days in which I could find the entirety of the texts online so I could check). Now, he might be a massive racist and be referring to a bunch of Irish wizards, but more likely he meant actual foreigners, not just funny-dressed British-sounding chaps.

I honestly don't remember why I'm thinking the coins are associated to the African Warlocks, but I thought there was something. Would have to check with the actual books on hand, though.

Grey Wolf

[DavidSh]

Historically, the popularity of US gold coins has depended on the contrast between the official and the de facto ratios in value between gold and silver. US coinage gold was an alloy about 90% gold, the rest silver and copper. The half eagle (five dollar coin), for example, weighed 8.359 grams for much of its run (about a third the weight of a silver dollar), and had mintages of over a million coins on some years. What with inflation, five dollars in 1890 would be worth $125 now, so you wouldn't go buy a loaf of bread with it, unless you are that guy who goes shopping with $100 bills.

And the effect I imagine for this kind of arbitrage by a rational Harry would be that the pound - galleon exchange rate would shift rather quickly, unless government action prevents this. I presume the current exchange rate is a fossil from the time when the UK was on the gold standard.

[hamishspence]

Leaving aside the constant obliviation that is rendering practically brain dead, and the possibility of exaggeration, he is just done speaking about foreign wizards, IIRC (I miss the days in which I could find the entirety of the texts online so I could check). Now, he might be a massive racist and be referring to a bunch of Irish wizards, but more likely he meant actual foreigners, not just funny-dressed British-sounding chaps.


I got the impression that he was simply assuming that anyone who tries to pay him in non-British money must be foreign - which is why he asks Mr Weasley if he is, despite Mr Weasley having no obviously foreign accent:


“Help me, Harry,” he muttered, pulling a roll of Muggle money from his pocket and starting to peel the notes apart. “This one’s a–a–a ten? Ah yes, I see the little number on it now….So this is a five?”
“A twenty,” Harry corrected him in an undertone, uncomfortably aware of Mr. Roberts trying to catch every word.
“Ah yes, so it is….I don’t know, these little bits of paper…”
"You foreign?” said Mr. Roberts as Mr. Weasley returned with the correct notes.
“Foreign?” repeated Mr. Weasley, puzzled.
“You’re not the first one who’s had trouble with money,” said Mr. Roberts, scrutinizing Mr. Weasley closely. “I had two try and pay me with great gold coins the size of hubcaps ten minutes ago.”

[snowblizz]

: gold coins are terrible units of currency. Gold, in general, is a very poor medium of exchange, which is why no-one has seriously used it in recorded history. It is too soft, too heavy and too rare. Silver may tarnish and copper is "base", but at least there is enough of both that the coins produced are usable. Any time someone suggests coins made of pure gold, the reality is that they are either too expensive and heavy for every day use, or they have the gold content of sea water (or, as the US discovered, have to be so thin and small you wouldn't hear them hitting the ground if they fell from your pocket).


* meant for every day use. I am aware that Europe had Venecian gold coins for major trade transactions and the like, but I'm fairly certain no-one ever bought a loaf of bread with one and got some change back, like we do in D&D.
Gold coins isn't a terrible currency. They are a great currency in an economy that cannot sustain fiat money.

Gold coins have been seriously used for almost the entirety of recorded history (and probably a bit before too).

Yes, gold coins are usually small and thin. They do not look like the coins we think of from basically Hollywood. That's not on goldcoins, that's on us. That's Hollywood goldcoins, and those feature in D&D too because like HP they were not written by an economist. Which is probably good because you would not be enjoying that game.

It's something often pointed out in books or when looking at them IRL "oh wow they are that small".

There's not been enough silver either really. And the lack of precious metals to make coinage has been a serious issue during recorded history, e.g. in western Europe and China at variosu points, especially economic booms.

You are right that everyday purchases weren't necessarily in gold coins. But people don't use $1000 bills only either. That doesn't negate the need for them as the source of nonperishable wealth, of sorts.

"Europe" had several kinds of gold coins floating around, Genua, Venice and Florens all made highly desired gold coins (due to consistency of content). Most major trading/commercial/financial centres had them, and most kings aspired to be able to mint cold coins. It was just too tempting for kings to debase the coingae so they tended to have short lives. Hence why trading cities were usually the more reliable coinage.

Whether silver, gold or both were desired in coinage tended to also depend on global trade currents. Since no trust existed in long distance trade, and the trade decifits were usually rather imbalanced hard currency was necessary for distance trading.

The European merchants weren't dumber than that they knew carrying around lots of gold was impractical and so a huge part of internal trade was conducted on exchange notes and noted up in ledgers in banks and trading houses.

It's not like you to this day buy a loaf of bread with a $100 note either. Because you know it'll be a hassle. Similarly people kept goldcoins if they could. And used other means when possible. I don't want to over emphasize the bartering, which by no means was as wideranging and primitive as eg Adam Smith would have us believe.

[Grey_Wolf_c]

Gold coins isn't a terrible currency. They are a great currency in an economy that cannot sustain fiat money.

What you are describing are things I agree with. I just don't agree that that meant gold was a unit of currency. It was a very refined form of barter, not unlike using bullion for backing IOUs.

I do, however, disagree with "a great currency in an economy that cannot sustain fiat money." I'd need an example of that, because I honestly do not know of any economy that has ever run on non-fiat currency for any significant length of time (say, at least a couple of generations). Now, I am not particularly versed in the medieval trading city economies, and thus maybe they did, but a very (very!) brief search suggests to me that even in Venice, Genoa etc. the unit of currency was fiat, and again, gold was used only in major transactions.

Which brings me back to my claim that they are not a currency. Currency is a medium of exchange, and gold, especially in pure form, wasn't used as such. It was used to back financial claims, and in exchange for massive purchases, but it wasn't a unit of currency any more than owning an acre is a unit of currency. No-one ever seriously intended gold to be used as regular currency (aside from maybe Diocletian, and we all know how well that turned out... and even he set prices on the basis of the denarii, which was fiat).


But people don't use $1000 bills only either. That doesn't negate the need for them as the source of nonperishable wealth, of sorts.

And this, I think is the key point, which I think reveals that we don't disagree on the fundamentals, just in the definition of the terms. Yes, I agree that the $1000 bill is not used for every day transaction. It "fails" as a unit of currency. Except it doesn't, because it is not intended as one. It is, as you point out, a storage of wealth, not a medium of exchange. Sure, it can be used as one in very specific circumstances, but then so can a car or a house.

Please note that my whole point here was that the galleons in HP are unlikely to be pure gold because they are used in every day transactions. They change hands all the time. That is what tells me that they are unlikely to be pure gold: because gold is never used in that way, even if they took the time to press it into coin shape.

Beyond that, I think our entire disagreement comes down to definitions, in which case, by all means we can agree to disagree. Arguing from dictionaries is dumb, and I'm fully prepared to accept that it is me using the words wrongly, if it comes to that. I do like to separate coins between unit of currency/medium of transaction and wealth signifiers. The distinction in reality is likely far more fuzzy than it is in my head.

Grey Wolf

[Eldan]

Well, the wizard economy is quite small relative to the world economy. So, even with a somewhat higher usage of gold in the wizarding economy, I would expect them to run short on gold before the world economy so much as blinks.

Then you have a lot of folks asking where all the gold has gone, and looking at the banking folks. The goblins, of course, are quite proud of their banking system, and are not going to want to take the fall for this. Why, of course, this one lad's been making off with all the gold.

Presumably, if they discover that he's been melting down all of their coinage, they will be unhappy with the wee arbitrating Harry.

Another potential failure point is exchanging the muggle currency back into wizard currency. Frankly, most Wizards don't muck about with muggles all that often, so the need for muggle currency is rather low. You'd probably satisfy it entirely with a fairly low volume, and simply be unable to exploit beyond that limit.

In practice, the "exploit" is merely a business opportunity, and perhaps one with some problems to put into practice. It probably doesn't even rank very highly in terms of how to make money using magic.

There has to be a way to change muggle currency into wizard currency, probably at Gringotts, otherwise, muggleborn wizards couldn't buy their school supplies.

[halfeye]

Gold is strange, and gold coins are stranger. When gold coins were in circulation, they were often clipped, and always wore away, because friction does that and gold is relatively soft. The strange thing is that the theoretical value of the coins was set when they were minted, so people might moan about the weight changing, but theoretically at least, the value didn't change when the weight did.

[Eldan]

Interesting fact: Switzerland has 10, 20 and 100 franc gold coins. (That's about the same value in dollars.) They haven't been legal tender since 1936, but they are popular collectors items and piece of bullion and there's millions of them. This is the 20 franc coin:
https://en.wikipedia.org/wiki/Vreneli#/media/File:20_CHF_1890_131415.jpg

21 millimeter diameter, 90% gold by mass, weighs 6.5 grams. A quick google search tells me they go for about 240 francs/dollars today if it's the series from the 30s, and over 300 if it's the series from the 10s. Since gold also goes by about 40 dollars per gram right now, that seems to be pretty close to what that much gold should be worth (39 dollars * 0.9 purity * 6.5 grams = 228 dollars.)

That's tiny compared to what we are told for Galleons, though.

[hamishspence]

There has to be a way to change muggle currency into wizard currency, probably at Gringotts, otherwise, muggleborn wizards couldn't buy their school supplies.

From Chamber of Secrets: when the Weasleys meet the Grangers in Gringrotts:


"But you're Muggles!" said Mr Weasley delightedly. "We must have a drink! What's that you've got there? Oh, you're changing Muggle money. Molly, look!" He pointed excitedly at the ten-pound note in Mr Granger’s hand.

[gomipile]

Another potential failure point is exchanging the muggle currency back into wizard currency.

I only encountered this idea in one fanfiction(I forget which.) In that one, Harry talked about using the muggle currency to buy silver in the muggle world, then exchanging that bulk silver for sickles at Gringotts.

[Tyndmyr]

I only encountered this idea in one fanfiction(I forget which.) In that one, Harry talked about using the muggle currency to buy silver in the muggle world, then exchanging that bulk silver for sickles at Gringotts.

Ah, that may have been MoR. That would work, though you'd probably lose a modest chunk of the cash at each exchange point. The wizarding world in particular appears to be less than perfectly efficient and up to date, so you'd expect to pay old timey arbitrage rates.

You could probably get away with it at a modest level, since it's largely exploiting a different gold/silver ratio of rarity between the two communities, but given the size of the wizarding community, doing much at all would get noticed fairly quickly. After all, it's not as if there are multiple banks to shuffle between to preserve anonymity.

[LordEntrails]

I got the impression that he was simply assuming that anyone who tries to pay him in non-British money must be foreign - which is why he asks Mr Weasley if he is, despite Mr Weasley having no obviously foreign accent:


“Help me, Harry,” he muttered, pulling a roll of Muggle money from his pocket and starting to peel the notes apart. “This one’s a–a–a ten? Ah yes, I see the little number on it now….So this is a five?”
“A twenty,” Harry corrected him in an undertone, uncomfortably aware of Mr. Roberts trying to catch every word.
“Ah yes, so it is….I don’t know, these little bits of paper…”
"You foreign?” said Mr. Roberts as Mr. Weasley returned with the correct notes.
“Foreign?” repeated Mr. Weasley, puzzled.
“You’re not the first one who’s had trouble with money,” said Mr. Roberts, scrutinizing Mr. Weasley closely. “I had two try and pay me with great gold coins the size of hubcaps ten minutes ago.”

Well, asking if someone who doesn't understand the basic currency is a foreigner is much more polite than asking if an adult is stupid or mentally disabled. Because from the muggle's point of view, what other possibilities are there?

[snowblizz]

What you are describing are things I agree with. I just don't agree that that meant gold was a unit of currency. It was a very refined form of barter, not unlike using bullion for backing IOUs.
Everything is a refined form of barter if you want to go there. IOUs backed by bullion is exactly what all modern currencies were between the late 1940s and 1974.
Some special words are used about trading specific things for specific things to make it seem better (I blame Adam Smith, he liked to think he was at the top of the development pyramid) but that doesn't change the fundamentals much.


I do, however, disagree with "a great currency in an economy that cannot sustain fiat money." I'd need an example of that, because I honestly do not know of any economy that has ever run on non-fiat currency for any significant length of time (say, at least a couple of generations). Now, I am not particularly versed in the medieval trading city economies, and thus maybe they did, but a very (very!) brief search suggests to me that even in Venice, Genoa etc. the unit of currency was fiat, and again, gold was used only in major transactions.All of the pre-modern world. All of medieaval times. All of the Renaissance. All of the early-modern period. Some rulers made brave attempts at fiat money. Usually in times of crises when they needed money. They all ended in massive inflationary/deflationary crises because the state couldn't enforce complience, couldn't resist temptation to game the system to their advantage (the one who gets to make the money is infinitly rich until someon asks what it's worth) and because the understanding of the reactions of humans and markets was not very developed yet. We only have truly fiat money in the modern world when the state could compel you to aquice. And despite all of this for long stretches of periods what you would likely claim is a currency and not barter, was in fact just a substitute for gold currency until 1974.

I would turn the question around. Where can you find evidence for a fiat currency outside the modern world that actually persisted for a couple of generations?

Also important to note, you seldom have just the one system operating. You had IOUs, bank drafts, ledger transactions and regular gold, silver and other coins being used as means of exchange from high medieaval times in Italy.

But the medieaval (european) world again had no fiat money. There was no authority who could infuse value in an item that wasn't intrinsically valuable, to say this is worth something because I say it is, and I'll exchange something for it indefinitely. You had gold coins, some of which were trusted more than others (I forget if the Florentines, Genuese or Venetians were the most stable coinmakers), and thus had more value because it was expected that the issuer had not tamprered with the coins at issue at least. As most kings were wont to. You had silver coins worth a certain fraction of gold coins. And sometimes copper coins worth a fraction of that. The latter of course tend to be fairly large because their metal values was low. One of the more ludicrous examples being Swedish 1600-1700s copper coins weighing up to 20kg or so because they represented a gold daler. Even these circulated, but mostly as payments to foreign entities, you would call it barter. Fiat currency requires trust and noone trusted even in goldcoins and weighed them. Usually different coins (currencies) were worth less the further out from the issuer you got as trust in them decreased.

At the end of the day there only two ways to do currency, fiat currency that has subjective value and a non-fiat currency with objective* value.

*although am willing to discuss the objectivity of e.g. gold value, why exactly is it so desirable really? etc etc etc


Which brings me back to my claim that they are not a currency. Currency is a medium of exchange, and gold, especially in pure form, wasn't used as such. It was used to back financial claims, and in exchange for massive purchases, but it wasn't a unit of currency any more than owning an acre is a unit of currency. No-one ever seriously intended gold to be used as regular currency (aside from maybe Diocletian, and we all know how well that turned out... and even he set prices on the basis of the denarii, which was fiat). The two underlined lines is where you contradict yourself. You cannot claim gold cannot be part of a currency and then say it was used in the exchange of goods. If gold only was ever used straight sa barter there'd be no point in making coins. Romanized Europe was however very very in love with the idea of coins and currency. The barbarians just cut off and weighed precious metals.

The problem really stems from D&D treating goldcoins as we would $100 bills. Goldcoins were absolutely used as money, and people were rich enough to go around with purse of them. Which was about as common then as someone with a wallet full of $1000 bills today. That doesn't mean they'd not also have a lot of silvercoins on them and some coppers for the poor.



And this, I think is the key point, which I think reveals that we don't disagree on the fundamentals, just in the definition of the terms. Yes, I agree that the $1000 bill is not used for every day transaction. It "fails" as a unit of currency. Except it doesn't, because it is not intended as one. It is, as you point out, a storage of wealth, not a medium of exchange. Sure, it can be used as one in very specific circumstances, but then so can a car or a house.
There's no fundamental difference between a £1 gold coin of ye olde days and $1000 bill today. Don't let the fact we now start at the small number throw you. The origins of currencies tended to work the other way around we start with 1 big one (usually a gold coin) and then everything else is fractions of that.

In fact basically all modern currencies are based on the idea of 1 something worth a number of fractions something. We just sorta swapped it around. £1 was a huge sum. So is $1000. We can see that in the remnants of the € $ £ being worth 100 cents/pennies. And that use of pennies tends to fade as inflation moves us along. Until we get to point where we decide we liked it better with less zeroes.



Please note that my whole point here was that the galleons in HP are unlikely to be pure gold because they are used in every day transactions. They change hands all the time. That is what tells me that they are unlikely to be pure gold: because gold is never used in that way, even if they took the time to press it into coin shape.

Beyond that, I think our entire disagreement comes down to definitions, in which case, by all means we can agree to disagree. Arguing from dictionaries is dumb, and I'm fully prepared to accept that it is me using the words wrongly, if it comes to that. I do like to separate coins between unit of currency/medium of transaction and wealth signifiers. The distinction in reality is likely far more fuzzy than it is in my head.

Grey Wolf
Well I think you are grossly misrepresenting the complexity of a medieaval economy too. And vastly overestimating the use of actual fiat currencies historically. My position on the HP thing is that it runs on movie money and is as fruitless to discuss as the magic sytem.

[Grey_Wolf_c]

All of the pre-modern world. All of medieaval times. All of the Renaissance. All of the early-modern period.

False. Ludicrously so, in fact. I already pointed out how: for example, in Roman times, a denarii was fiat. It did not contain its worth in silver. Instead, it ranged from like 50% silver to sub-5% silver, despite being valued as 100% silver, its face value. It was fiat money. Any currency that is debased - i.e. pretty much every currency throughout history - has been fiat, to the best of my knowledge. Certainly "All of the pre-modern world. All of medieaval times. All of the Renaissance. All of the early-modern period" that I have cared to examine ran on fiat money, backed by the promise of gold or silver, but not actual gold or silver.

Grey Wolf

[snowblizz]

False. Ludicrously so, in fact. I already pointed out how: for example, in Roman times, a denarii was fiat. It did not contain its worth in silver. Instead, it ranged from like 50% silver to sub-5% silver, despite being valued as 100% silver, its face value. It was fiat money. Any currency that is debased - i.e. pretty much every currency throughout history - has been fiat, to the best of my knowledge. Certainly "All of the pre-modern world. All of medieaval times. All of the Renaissance. All of the early-modern period" that I have cared to examine ran on fiat money, backed by the promise of gold or silver, but not actual gold or silver.

Grey Wolf

Debased coinage is not fiat money. The hint is in the name. It's debased. It's not supposed to be like that. It's supposed to have a certain amount of precious metal to give it value. And people would not trade with it at face value. Hence the inflatory problems at the later stages of Imperial Rome. If the denarri would have been a true fiat it would have been struck on brass and everyone would gladly have traded on it secure in their trust that the Emperor kept up the value if money.

This is one of the ur-examples of why economies ran on non-fiat currency and specifically valued coins (eg weighed them) in transaction.

Furthermore if it is backed by gold or silver it is *not* fiat money.

This is from Wikipedia.

Fiat money is a currency without intrinsic value that has been established as money, often by government regulation. Fiat money does not have use value, and has value only because a government maintains its value, or because parties engaging in exchange agree on its value

A debased fiat-money is a factual impossibility because fiat money has no intrinsic value to debase.

[Wardog]

I only encountered this idea in one fanfiction(I forget which.) In that one, Harry talked about using the muggle currency to buy silver in the muggle world, then exchanging that bulk silver for sickles at Gringotts.

I vaguely remember hearing about someone doing something like that in real life:

IIRC, medieval Europe mainly used silver currency, because gold was too rare to be practical. But in North Africa, gold was more plentify (and correspondingly lower value than in Europe) and was used as a currency. The chief tax collector (or other high-ranking minister) in France hit on the idea of collecting taxes in silver, taking the money to North Africa, exchanging it for gold, bringing the gold back to France, selling it for silver, handing over the tax money to the king, and pocketing the profit.

He did very well out of it, until he was found out and executed for treason.

[Rockphed]

I vaguely remember hearing about someone doing something like that in real life:

IIRC, medieval Europe mainly used silver currency, because gold was too rare to be practical. But in North Africa, gold was more plentify (and correspondingly lower value than in Europe) and was used as a currency. The chief tax collector (or other high-ranking minister) in France hit on the idea of collecting taxes in silver, taking the money to North Africa, exchanging it for gold, bringing the gold back to France, selling it for silver, handing over the tax money to the king, and pocketing the profit.

He did very well out of it, until he was found out and executed for treason.

I suspect his problem was that he pocketed all of the profit. Kings tend to get upset when people try to take advantage of them.

[Tyndmyr]

Precisely. Despite the king not being any measurably worse off, he felt used and probably pissed.

The same would likely translate to the goblins of the Harry Potter world if this scheme were uncovered. Is it fair? Meh. But it's potentially an interesting plot if it goes sideways.

[Wardog]

I suspect his problem was that he pocketed all of the profit. Kings tend to get upset when people try to take advantage of them.
That, and I think France was officially at war with the people he was trading with.

[warmachine]

This is a bit of an offshoot about a harry potter discussion. In fanfiction one of the less common ways harry gets rich is he takes his trust vault of galleons, melts them down, sells the gold off, then exchanges it for more galleons in an ever increasing money making scheme. This works because everyone involved in magical banking is stupid and galleons are worth 5 english pounds per coin despite theoretically having like a thousand bucks worth of gold in each one. The question i wanted to ask was, how far would this have to go before it basically crashes the world wide gold market? How many tons of gold would it take to completely tank the value of gold?
The gold market wouldn't crash. The manufacturers of galleons would go bankrupt before any significant price change happened.

Unless I'm missing something and galleons can be created out of thin air. In which case, it would have already happened as the manufacturers flood the gold market themselves. Because people are greedy.

[Traab]

Heh, all this talk of economies and currencies is reminding me of yet another harry fic which was pretty crackish but at one point the main characters basically destroyed the magical economy. They caused a run on the bank by letting the brits know they could get interest on their accounts if they went to literally anything but a goblin bank, the goblins stripped bare the gold from the accounts that didnt close to pay off the ones that did, including the ministry, so the ministry tried to use paper money which touched off a mini riot because no stores would accept it "and its too rough to use as toilet paper" which triggered a few more plots that just kept digging the hole deeper as minister fudge tried desperately to find a solution that wouldnt involve him and his administration hanging from the nearest lamp post.

[NichG]

There's a difference between having an internally inconsistent wizard economy and having an economic gradient between the wizard and muggle economies. In the first case, you can design a pattern of trade which, dealing only with Gringotts, instructs them by their own rules to just hand you money for nothing.

Having cheap gold with respect to muggle money makes sense if, by and large, the wizarding community lacks any sources of muggle money but still has occasional demand for it. However, the wizarding community is something like 10000x smaller than the rest of Britain, so the demand for muggle money would tank long before the external valuation of gold did.

Of course, we can just as easily go wild and speculate about circumstances which would support Gringotts valuation in full equilibrium.

The bigger problem, as MoR points out, is the gold/silver ratio.

[Grey_Wolf_c]

The bigger problem, as MoR points out, is the gold/silver ratio.

That is only a problem if you make assumptions with the explicit purpose of finding a problem. As the Giant says, if your assumptions lead you to "see" plot holes, change your assumptions.

Grey Wolf

[NichG]

That is only a problem if you make assumptions with the explicit purpose of finding a problem. As the Giant says, if your assumptions lead you to "see" plot holes, change your assumptions.

Grey Wolf

Problem, in the sense that a trader running at those rates would suffer an inefficiency which others could systematically make profit against.

Problems don't automatically constitute plot holes - it's when the response to those problems deviates from established characterizations or facts. We can easily believe that the wizarding community, as small as it is, can exist far from economic equilibrium on the basis of wizards holding classic nobility stereotypes like 'economics is something for poor people to worry about'. But it does represent an explicit plot opportunity for someone to then come in and exploit that vulnerability.

And in the context of HP, this seems fine - the entire series is an ongoing story about how people's fear of thinking about deviations from 'the way things have always been' gets them into trouble and as a whole makes their society approach the brink of collapse from the actions of a dark lord who is willing to step outside (if just barely) some of those assumptions and traditions holding that society together.

Vulnerability to arbitrage is in a way more self-consistent to the setting and plot than if they had sophisticated protections in place. But it does set up the opportunity for telling stories like MoR in that setting as well.