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#2418·Erik OrrjeOP revised 4 days agoThe reason to back a currency with gold or some other commodity is that the commodity has other utility aside from being used as money. This sets a floor on the price, making it a store of value.
Utility is not a necessary aspect of money. Only 5-10% of gold's value is tied to its industrial use (https://www.statista.com/statistics/299609/gold-demand-by-industry-sectorshare/#:~:text=The%20jewelry%20industry%20accounted%20for,China%2C%20Russia%2C%20and%20Australia). Another 40% is used for jewellery.
This floor is not so reassuring if the asset were to plummet 50%. Other commodities, such as silver, have a greater industrial utility. That makes it less suitable as money since its value becomes tied to commodity cycles.
The reason to back a currency with gold or some other commodity is mainly due to its scarcity, which puts a limit on money creation (done through fractional reserve banking).
The price of a commodity and the quantity of it in use don’t strictly correlate in the way you suggest here. 50% of gold being tied up in industry, jewellery, etc. does not mean the price floor is at 50% of the current price.