Is Gold An Important Part Of The Monetary System?
July 22, 2010 by Jack Wogan
Filed under Insurance
All investments imply risks. Gold bullion is not an exception, but if compared with currencies, its price doesn’t seem to fluctuate that much. Due to this stability and the fact that gold is valuable in itself, all countries have in their treasuries national reserves under the form of the precious metal. This rule applies to international reserves too, as it is the case of the World Central Bank. This way, no matter what uncertainties might come in the future , gold is still one of the best solutions.
Understanding the importance of the precious metal in the monetary system, means understanding the history of several financial systems. During war times, like in the case of the World Wars, the power of purchasing of currencies lost important percentages. The best decisions nations thought they could make at the time, was to get loans, when the purchasing power was still high. Of course this fact led to an increase in public debt, followed by a period of disinflation, where countries needed to get even higher loans. Afterward periods of instability and depression came. Governments then considered that the price of gold had to be reevaluated during reforms. It got higher each time it was needed.
Gold standard is a phrase few people are familiar with, if they haven’t studied financial issues and monetary systems. It is actually a monetary system in itself. It means that the prices of goods are set using gold as the common benchmark, thus gold becoming the accepted economic unit of account.
In more recent times, gold proved itself to be at least as important for the monetary system as in the past. The quantity of this metal existing in the treasuries of each country and in Central Banks is the foundation for the national monetary system. Gold standard is decided by its amount, stopping governments to destabilize the monetary policies. The value of currency, the level of inflation are also set by the amount of gold held in Central Banks. It can also come as a guarantee for external loans.
The monetary system was on the edge of collapse several times over the years. Currencies such as Dollars and Euros can be easily devalued. But there is one certainty- that gold bullion will always stand as a power, and norm in establishing the purchasing power.
Because it’s a sure and safe investment in times of recession, let the professionals show how to buy gold bullion.
