Why Gold Challenges the Power of Governments and Central Banks
By Lode Blomme- 5 minutes read - 1054 words
In 1971, the United States made a decision that changed the global financial system forever. They took the US dollar off the gold standard, which meant that the dollar was no longer backed by gold. This decision had significant implications for the world economy and has been a topic of debate for economists ever since.
Since then, gold has become somewhat of a financial enemy to Wall Street and the White House. The reason for this is that gold represents an alternative to fiat currency, which is currency that is not backed by a physical commodity, like gold or silver. Instead, its value is derived from the faith and credit of the issuing government or central bank.
Gold, on the other hand, has intrinsic value. It is a tangible asset that has been used as a store of value and a medium of exchange for thousands of years. Unlike fiat currency, gold cannot be printed or created out of thin air. Its supply is limited by nature, which means it cannot be debased by governments or central banks.
This fundamental difference between fiat currency and gold is what makes gold a thorn in the side of Wall Street and the White House. Here are a few reasons why:
Gold represents a challenge to the power of governments and central banks
Governments and central banks have a lot of control over fiat currency. They can create more of it, they can set interest rates, and they can manipulate exchange rates. This gives them a lot of power, but it also makes them vulnerable to criticism when things go wrong. When inflation is high or the economy is struggling, people tend to blame the government and the central bank.
Gold, on the other hand, is outside of the control of governments and central banks. Its value is determined by supply and demand in the global marketplace. This means that it can serve as a check on the power of governments and central banks. If people lose faith in fiat currency, they may turn to gold as an alternative. This could lead to a loss of power for governments and central banks.
Gold is a hedge against inflation and economic uncertainty
One of the main benefits of gold is that it is a hedge against inflation and economic uncertainty. When the value of fiat currency is eroded by inflation or economic turmoil, gold tends to hold its value. This makes it an attractive asset for investors who want to protect their wealth.
However, this is also a problem for governments and central banks. If people start to hoard gold instead of holding fiat currency, it could exacerbate inflation and economic instability. This is why many governments and central banks have tried to discourage the use of gold as a store of value.
Gold is a threat to the global financial system
Finally, gold is seen as a threat to the global financial system because it represents an alternative to fiat currency. If people start to lose faith in fiat currency and turn to gold as an alternative, it could undermine the entire system. This is why many governments and central banks have worked to keep the price of gold low and discourage its use as a store of value.
Despite these challenges, gold remains a popular asset for investors around the world. In fact, the price of gold has been on the rise in recent years, reaching record highs in 2020. This is partly due to economic uncertainty caused by the COVID-19 pandemic, but it also reflects a growing distrust of fiat currency and the global financial system.
From Bolivar to gold
For example, consider the case of Venezuela. In 2018, the country was facing a severe economic crisis. The country’s inflation rate had skyrocketed, and its currency, the Bolivar, was rapidly losing its value. In response, many Venezuelans turned to gold as a way to protect their savings from the effects of hyperinflation.
However, the Venezuelan government was not pleased with this development. The government had strict currency controls in place, which meant that it was illegal for Venezuelans to hold or trade foreign currency without permission. The government saw gold as a potential threat to these currency controls and tried to crack down on its use.
The government began confiscating gold from private citizens and cracking down on gold dealers. This only made the situation worse. People began to hoard gold, which drove up the price even further. The government’s actions also fueled a black market for gold, which made it even harder to control the use of the precious metal.
The crackdown on gold had other unintended consequences as well. It further eroded trust in the government and its ability to manage the economy. It also drove more Venezuelans to seek refuge in cryptocurrencies like Bitcoin, which are decentralized and not subject to government control.
The case of Venezuela is just one example of how gold can be both a hedge against economic instability and a threat to government control. While gold can provide a measure of security during times of uncertainty, governments and central banks have historically been wary of its potential to challenge their authority over the financial system.
The rise of digital gold
One of the most recent developments in the world of gold is the rise of digital gold. Digital gold is a cryptocurrency that is backed by physical gold. It allows investors to buy and sell gold in a digital form, which makes it more accessible and easier to trade than physical gold.
Digital gold has the potential to revolutionize the way we think about gold and the financial system. It allows people to hold and trade gold without the need for physical storage or transportation. This could make gold more accessible to a wider range of investors and increase its popularity as a store of value.
However, digital gold also raises some concerns. For example, it is not clear how digital gold will be regulated or how its value will be determined. Additionally, there are concerns about the security of digital gold and the potential for fraud or hacking.
Despite these challenges, digital gold is an exciting development in the world of finance and has the potential to change the way we think about gold and fiat currency.