The Case Against Gold as a Central Bank Asset

Jon Economy, Gold, Government, Market Commentary, Precious Metals, War

What I’m about to write here, I have believed for close to 40 years. I wrote about it decades ago in Remnant Review. I’m not going to look through all of the published issues to find when I wrote it.
What good is gold in the vaults of any central bank? I understand why it’s a good idea to have bullion gold coins in your “vault.” I don’t understand why it’s a good idea for central bankers to put gold bullion bars in their vaults.
Central banks buy gold from the general public. They also buy gold from each other. Why do central bankers buy gold? They have to pay good money for it, meaning bad central bank fiat money.
They can buy any financial asset. Why do they buy gold bullion? They never intend to sell gold to the public. So, they don’t intend to make a profit on their holdings of gold. It just sits there.
Central bankers don’t own the assets that the banks hold. It doesn’t matter to them personally whether it’s gold or government bonds.
THE GOLD COIN STANDARD
In the era of the gold coin standard, when citizens could bring in paper money and demand gold coins from a local bank, this transferred tremendous authority into the hands of the general public. The public could participate in a run on a local bank’s gold. If this took place nationally, this would cause a run on the central bank’s gold. This would force the central bank to stop inflating through fiat money. That was the great advantage of the gold coin standard. It transferred power into the hands of the general public. The general public could veto central bank policies of monetary inflation.
This is why all the governments of Western Europe outlawed the gold coin standard soon after World War I began in August 1914. Commercial bank runs began almost immediately. So, central banks and governments allowed commercial banks to break their gold contracts with their depositors. Then the central banks confiscated the gold in the commercial banks. They wound up with the public’s gold. It was a gigantic act of theft. It was the end of the gold coin standard. There was a huge loss of liberty.

This post was published at Gary North on October 19, 2017.