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After Russia invaded Ukraine and Western sanctions froze the country’s foreign exchange reserves, President Putin initiated a significant increase in Russia’s gold holdings. This move has led to a growing number of other countries to follow suit, fueled by declining trust in the U.S. dollar as the world’s reserve currency.
Straight Arrow News contributor Peter Zeihan wonders what this means for analysts who support the switch to an asset-backed currency. He believes in the need to look at history because every previous instance of using an asset-backed currency, like gold, has “resulted in collapse.”
Excerpted from Peter’s July 27 “Zeihan on Geopolitics” newsletter:
After today’s video, all the leprechauns out there might be mad because we’re talking about GOLD. And unfortunately, there’s no treasure at the end of the rainbow this time…
At the start of the Ukraine war, many of the world’s advanced central banks placed sanctions and embargoes on Russian financial assets. As Putin tries to repatriate gold reserves from these hubs worldwide, what does this mean for the leprechauns who think we should switch to an asset-backed currency?
If you know your history, the answer is obvious. Every time we’ve used an asset-backed currency, it’s resulted in collapse. There’s just no asset, especially not gold, that can keep up with economic growth and expansion around the world. And when the currency becomes a brake on economic activity, you end up with a sharp crack in the system; which leads to depression and often state collapse.
You can argue that fiat currencies aren’t perfect, but don’t say an asset-backed currency would be better. This isn’t financial advice, but if gold continues to be pulled from these hubs, its use case will only get smaller and smaller.
