The world is teetering on the edge of a return to a gold-based monetary system, an idea recently highlighted by Steve Forbes. This shift is happening despite widespread disdain for the historical gold standard among economists and financial authorities.
Contrary to popular belief, the gold standard functioned effectively. The United States adhered to a gold-based system for 180 years until the early 1970s. During that period, inflation was virtually nonexistent, and the nation experienced unprecedented economic growth. Since abandoning the gold standard, the average historic growth rates have decreased by about a third. Today, median household income could be at least $40,000 higher if the growth pattern from those 180 years had continued. Despite these facts, disdain for a gold-based monetary system remains prevalent.
However, events are forcing a reconsideration of this once-dismissed concept.
One indication of this shift is the recent trend of central banks purchasing gold at record levels. Countries like China, India, Russia, and others, such as Poland, are buying gold due to growing concerns about the long-term value of the dollar. This trend reflects a broader anxiety about the perceived decline of the United States.
Another indication is the rising popularity of cryptocurrencies, which initially emerged as a response to the instability of fiat currencies. However, most cryptocurrencies, especially Bitcoin, fail to provide the stability required for commercial transactions and long-term contracts. Some cryptocurrencies are tied to gold, but they have not yet gained the credibility or infrastructure needed for widespread use. As governments continue to struggle with monetary policies, this is likely to change.
The current frenzy of debt creation, both public and private, is another critical factor. The world’s total debt now exceeds $300 trillion, an amount that is three times the global GDP. This excessive debt will inevitably lead to crises that cannot be easily resolved.
The activities of the BRICS nations—Brazil, Russia, India, China, and South Africa—further highlight this shift. Saudi Arabia is also considering joining this group. Although their monetary strategies have had limited impact so far, the situation is beginning to evolve.
India has recently started experimenting with gold-based government bonds. Monetary expert Nathan Lewis, coauthor of the book “Inflation: What It Is, Why It’s Bad, and How to Fix It,” notes that these bonds could be very popular with investors worldwide. Since the start of the floating currency era in 1971, a gold bond paying 4% would have outperformed all stock and bond markets globally.
Zimbabwe, known for its history of hyperinflation, recently announced the launch of a new currency tied to gold. While skepticism about the government’s ability to manage such a system is warranted, this move is indicative of broader trends.
These developments point towards an impending return to the gold standard, driven by the failures of the current economic system. The reliance on fiat currency and the incessant creation of debt have led to instability and uncertainty. In contrast, a gold-based system offers a semblance of stability and reliability that is increasingly appealing in a world where economic policies appear to serve the interests of a select elite rather than the broader population. The signs of change are undeniable, and the resurgence of gold as a monetary anchor seems inevitable. Steve Forbes has brought attention to this potential shift, urging a reevaluation of the gold standard’s role in stabilizing the economy.