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It would have required the Swiss central bank to hold 20% of its assets in gold, which seems like a modified form of a gold standard.
Is this the end of gold as a store-house of value? It's already lost about a third of its value recently. It's been called a barbaric relic for a hundred years or more. Maybe people are ready to relegate it to the role of jewelry: uniquely useful in fashioning beautiful trinkets to be worn by beautiful women.
Maybe its role in the financial world has come to an end. Maybe it will be just another vehicle for speculation with no intrinsic value.
I wonder if there are any implications for monetary and fiscal policies or if this is just another ripple in the tides of economic life.
Maybe its role in the financial world has come to an end. Maybe it will be just another vehicle for speculation with no intrinsic value.
Dubious. Gold will be used for money in year 3,000 if humans still walk the earth. Will any currency used today be? I doubt it.
Quote:
Originally Posted by Troyfan
I wonder if there are any implications for monetary and fiscal policies or if this is just another ripple in the tides of economic life.
I think it exposes flaws in the current monetary system, if a small nation's central bank can buy 70% of the world gold output. The world of paper, and the world of physical are vastly out of whack.
Dubious. Gold will be used for money in year 3,000 if humans still walk the earth. Will any currency used today be? I doubt it.
I think it exposes flaws in the current monetary system, if a small nation's central bank can buy 70% of the world gold output. The world of paper, and the world of physical are vastly out of whack.
Take some gold dust to your local grocery store and try to buy some food. No doubt about it, gold no longer works as money. It may be valuable but it is not money.
The Swiss can certainly afford to buy a pile of gold and stick it in a vault. So what? We have tons of gold in Fort Knox. I have no idea what good that does. What could we ever do with that gold? Take some out of storage, sell it and turn it into paper money? And what would that do or mean to anyone?
Take some gold dust to your local grocery store and try to buy some food. No doubt about it, gold no longer works as money. It may be valuable but it is not money.
It is not currently practical as money, granted. But who said it was? The point was that it is and will remain valuable.
I remember in an economics class, the professor asked why gold was $32/ounce while water was free. Gold was useless (except for those exoteric applications people mentioned) while water was necessary. Why should a useless commodity cost more than a necessary one?
Students just kind of mumbled replies because no one knew. The answer, obviously, is that gold is worth what people will pay for it. Unlike a share or common stock, an ownership interest in a going company, it is not a claim on future earnings. It will never create anything of value and will never be more or less than what it is now.
For a couple of centuries, it had value as a guarantor of a country's currency. Pounds, Francs, Dollars could be exchanged for a certain amount of gold. No country, so far as I know, still makes such a guarantee. This was a bow to the historic role of gold as a storehouse of a nations wealth.
Absent this role, what purpose does gold serve (again, except for the few mentioned)? Vanity, certainly. Like pearls and diamonds. As far as I can see, it's value has been reduced to what people will pay: the market says it's worth $X, so it is. Almost all other commodities have value because they have use, of utility as economist like to say.
Not gold. It's the most speculative speculation of all.
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