Why doesn't the huge difference between the muggle and wizard gold exchange rates get misused?

Question

Why doesn't the huge difference between the muggle and wizard gold exchange rates lead to the collapse of the wizard economy?

We know, that 17 silver Sickles is worth a golden Galleon. However, in the muggle world, you can get more than 50 kg silver for one kg of gold.

Even if Sickles were the same size as Galleons (if I remember correctly, they are much smaller), and the gold content of Galleons was the same or even less than typical muggle gold coins, it would still be highly profitable, to buy silver in the muggle market, exchange it for gold in the wizard market, and sell the gold in the muggle market.

How is it that no one does it? It could ruin the wizarding economy in a very short time, or at least draining most the gold out of it and altering the exchange rates between Galleon and Sickle?

We all know that magic can't create money or precious metals...

Answer 1

This very question occurs to the protagonist in the fanfic Harry Potter and the Methods of Rationality:

"I mean, suppose I came in here with a ton of silver. Could I get a ton of Sickles made from it?"

"For a fee, Mr. Potter-Evans-Verres." The goblin watched him with glittering eyes. "For a certain fee. Where would you find a ton of silver, I wonder?"

...

Harry nodded. "Thank you very much, Mr. Griphook."... One competent hedge fundie could probably own the whole wizarding world within a week. Harry filed away this notion in case he ever ran out of money, or had a week free.

Later it is revealed that the Goblins are wise to the idea of magical counterfeiting, so at least they aren't vulnerable to attack from their own side.

Answer 2

Rowling has said in an interview that a Galleon is worth about £5, which at 1990s prices works out to (very roughly) about 1/40 of an ounce of gold. This suggests that the amount of Muggle gold you can buy with a Galleon must be a tiny fraction of its weight; presumably a Galleon weighs at least a significant fraction of an ounce. (For comparison, a (U.S.) quarter weighs roughly 1/5 of an ounce, while a (U.K.) pound coin weighs roughly 1/3 of an ounce.)

How could this be true? It's almost certainly too large a ratio to be explained by currency debasement, so I think the only possible explanations are magical. Perhaps Galleons are carefully charmed in ways that make conversion difficult or impossible (say, one charm to make them repellent to Muggles, and one charm to alert the Ministry if anyone tries to melt them down or break the charms).

Answer 3

The values of gold and silver fluctuate all the time.

One common tactic to keep currency up with that fluctuation is to alter the gold/silver content in the production of the coins.

there might also be non-obvious expenses and difficulties in transferring between the 2 currencies.

You can sometimes see such disparities in the real world, but there's always a hidden cost causing that disparity. In order to execute a get-rich scheme like that, you have to be the first one to do it, and it won't be too long before the prices equalize.

Answer 4

Your question appears to be based on the assumption that it would be possible to trade, in the wizarding world, in the same manner as it is done in the modern commodities markets - which is mostly by computer.

Trading, in the wizarding world, is done by carrying what you want to trade to a place where someone will trade for it. This is going to severely limit how much you can trade.

So, while it is entirely possible for an enterprising Muggle-born to see the disparity in price for certain items between the muggle world and the wizarding world, and to take advantage of it, they would never be able to make the kind of fortune that the question is implying.

It is not uncommon for there to be a price disparity for a commodity between two places. Nor is it uncommon for enterprising people to take advantage of the disparity to make a couple of bucks. In the long run, though, such things will tend to even out over time, or to be constrained by other factors - such as the limit on how much one person can carry, or how many trips carrying large amounts of bullion one could make before losing one's mind from boredom, or getting robbed.

The kind of fortune-producing trading that the question is implying just couldn't happen.

Answer 5

As far as I know, it says nowhere in the books that sickles and galleons worth is determined by their silver /gold content.

You can have silver and gold coins without being tied to the gold standard, especially in a magical world, as indicated by other answers.

In that case is it is quite possible that galleons don't have a high gold content or even if they have high gold content, that it is expensive to separate actual gold from the particular alloy (see Is there any canon indication that Galleons and Sickles are actually made of pure Gold and Silver? )

Still, I am with you in that it is quite conceivable that disparity of how much effort it takes to do some things wizard way and muggle way, -- combined with the fact that muggles don't know about wizards and most wizards don't know much about muggles, -- means it is practically inevitable that wizards could do a get rich quick scheme easily one way or another.

Think buying Manhattan from Indians.