People often ask me how gold can be used as a currency, since it would be almost impossible to create a coin that would be small enough to conduct everyday transactions, such as buying a cup of coffee. This article explains how. The gold does not have to be exchanged itself from hand to hand, just the ownership of the gold that is held in safekeeping. Gold ownership would be exchanged just as we exchange ownership of our dollars today by writing a check or using a debit card.
Also notice that government involvement is not required. Money can be produced naturally and spontaneously by the market, just as the market produces any other desired good. A free market probably would produce many kinds of commodity backed monies--gold money, silver money, etc. The only thing preventing this from happening today is the prevalence of legal tender laws, which force people to use only government money...which is backed by nothing!