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The bank can covert the gold into cash, lend it out. The borrower will pay back in the cash equivalent amount of gold at the end of the lease plus an interest expressed % of gold. Can't it work this way?
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Re: If gold is money, why can't u deposit gold in a bank and earn interest?
It certainly could work this way, but it's not very practical. In the broadest terms you are describing a "gold clause". A hundred years ago a gold clause was common in contracts that involved a lot of money and many years of time. It protected the lender from inflation. The amounts of money to be paid back in the future were tied back to an equivalent amount of gold on the day the contract was signed, and could even allow the lender to demand physical gold as repayment rather than currency. In 1933 when the US made owning gold illegal it also made gold clauses illegal. In 1977 the gold clause was again made legal and court cases since have affirmed the legality.
As a practical matter for smaller transactions at commercial banks we have an assay problem. I hand the bank a bit of metal I claim is 24 ct. fine gold, but maybe it's a counterfeit that is gold-plated tungsten or only 18 ct gold. The only way for the bank to protect itself would be to perform some sort of assay on the gold, which is too expensive for small amounts.
For central banks and bullion banks the gold is in 400 oz "good delivery bars" certified at 99.5% pure, like these:
Those bars are worth a half million dollars each, keep in trusted vaults with many other such bars, and have careful records about who made them and who has held them. The folks that own them are vastly wealthy and can be trusted to correct any mistakes if a bar turns up that's less than claimed.
Doing gold transactions even at $100,000 might not be practical to be sure one is not cheated. -
Re: If gold is money, why can't u deposit gold in a bank and earn interest?
euros are money but i can't deposit them in my bank account. etc.
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