Why Gold Became Hard Currency While Diamonds Didn't: A Miner's Query

During project discussions, a mine owner asked:
"Both are rare, but why did gold become hard currency while diamonds didn't?"

What Is Hard Currency?

In the gold standard era, "hard currency" specifically referred to gold. Today, it denotes currencies with strong international credibility, stable value, and a firm exchange rate.

When a country has low inflation and a trade surplus, its currency remains relatively stable—this is known as a "hard currency" in global financial markets.

Why Can't Diamonds Serve as Hard Currency?

1. Pricing Transparency & Standardization

   • Gold's value is anchored in purity, with minimal price gaps for the same purity due to global gold benchmarks.
   • Diamond pricing is heavily influenced by human factors: terms like 4C, fire, and "eight hearts and eight arrows" confuse the public. Even identical diamonds can have wildly different appraisals across institutions.

2. Value Distortion

   • Diamond prices have long deviated from intrinsic value, with speculation driving a significant portion of transaction costs.
   • Gold is a tangible precious metal with limited reserves and high extraction difficulty.

3. Scarcity & Artificial Production

   • While diamonds are rare, they form under specific temperature and pressure conditions. Composed of carbon (like coal), diamonds can now be synthetically produced by humans.

Advantages of Gold as Currency

1. Divisibility: Can be processed into various sizes.
2. Preservation: Chemically stable (one of the most inert metals), resistant to degradation.
3. Liquidity: Easy to carry, widely used, and globally acceptable.
4. Scarcity: Non-renewable resource with finite supply.

Why Does Gold Function as Hard Currency?

1. Economic Standard
   Gold became a constant measure of economic value for other goods, deeply intertwined with human economic systems.

2. Physical Stability
   Its inert properties make it ideal for currency—unlike paper money, it never deteriorates.

3. Reliability vs. Fiat Currencies

   • Fiat currencies (even once-strong ones like the Soviet ruble) can collapse unpredictably.
   • Central banks can arbitrarily print paper money (e.g., unlimited USD issuance), but gold's supply is fixed and unalterable.

1. Universal Acceptance

   • While some national currencies aren't globally convertible (e.g., USD isn't accepted everywhere), gold can be exchanged for local currency worldwide—even in countries with gold restrictions, informal markets thrive.
   • Over 180 national currencies lack international standing, but gold remains recognized in global financial markets.

2. Financial Utility
   Gold serves as a collateral asset in international finance, enabling borrowing for nations, organizations, and individuals.

3. Institutional Endorsement
   Central banks and the IMF still hold gold as a reserve asset, setting a precedent for global investors.

4. Popular Trust
   Growing gold reserves among both central banks and the public solidify its status as the world's most widely accepted hard currency—surpassing any fiat money.