Excerpt from FOFOA

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In fact, the current system is not fair to the savers of the world. It punishes responsibility and rewards reckless behavior.

This is all tied to interest rates. Before we went off the gold standard, there was no market for speculators to speculate on interest rate changes. That market has grown into a huge beast since 1971. And this is one of the main problems with the current system.

In a pure gold money system (and I'm just speaking hypothetically here, I'm not proposing this system) no interest need be charged for lending, nor earned by saving. In a pure gold money system, deflation of prices is the normal state of things as the economy grows. So if I loan you an ounce of gold for one year, when you return it to me a year later it will be worth more in terms of real goods because the economy has grown while the money supply has remained relatively stable.

On the other hand, if you save an ounce of gold for 5 years, then when you go to spend it, it will buy you more than when you started saving. So saving is rewarded. No interest is needed.

In the fiat system interest is a must, because the dollar is constantly losing value. But part of the problem is that interest does not keep up with inflation. And in order find a way to make interest keep up with inflation, you must put the principle of your savings at risk of loss. This is happening right now. Many savers are not only failing to keep up with inflation, but they are actually losing their principle. This is a major flaw in this system.

On top of that, governments actually MANIPULATES the rate of interest lower than the market wants it. This punishes savers even more.

So with Freegold, we don't have to get rid of fiat currencies for use in trade. But we the people will do our saving in gold. And since the world's economy will still be run on fiat, inflation will still rule the day, not deflation like in a pure gold money system. So the price of gold will float freely against all currencies and provide the stability of savings without the counterparty risk of stocks or bonds. And it will also act as a barometer against governments that print in order to fund their activities. It will expose the credibility of each currency in the world.

So as a borrower, you will still borrow fiat at a rate of interest. And the banks will still print through fractional reserve lending. But as a saver, I will have the choice to save in either Freegold or in the system that pays me some interest, but at a risk. I will have to judge the two options and decide which benefits me the most.

So no, the gold supply does not need to increase. It can, it may, or it may not. Doesn't matter. The free market will set the price of gold relative to the paper currencies in the world. And the key word is Free. With the US dollar gone as the world reserve, replaced by either regional currencies, or by a currency which benefits from a high price of gold, the price of gold will no longer need to be controlled. In fact, it can't be controlled once the dollar reserve system is gone. And that system is crumbling today as I type.
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http://fofoa.blogspot.com/2008/09/freegold.html