In 1971, President Richard Nixon took the US dollar off the gold standard “temporarily.” In effect, the United States had defaulted on its commitment to redeem its dollars in gold! The use of gold as money, which had begun with the earliest civilizations (who used it in the form of nuggets), had been perfected by the Lydians (who turned gold money into coins), and was trusted as a currency anchor, was no longer. Silver and gold were demoted to the back alleys of monetary worth for the future. The US dollar, which was backed by gold (at least to some extent) became a floating currency, anchored to nothing. Several other global currencies that also left the gold standard behind were pegged to the dollar and became floating currencies by virtue of their connection to the dollar. The anchor of silver and gold changed to the anchor of a promise and oil. The security of real money with intrinsic value became a currency with value by virtue of government declaration or fiat. Counterparty risk now characterised the entire global financial system.

That is the story of one of the most important monetary events in history given in a single paragraph. However, is it accurate? From the perspective of historical fact, yes. The dollar was unpegged from gold in 1971. But is the gold standard truly over? I think the answer is no; only technically.

According to the World Gold Council, central banks around the world own around 35,000 metric tons of gold. One-fifth of all the gold ever mined is in the hands of governments today. How did we get to this situation? Well, in the early part of the 20th century, governments confiscated gold from its citizens. The gold confiscation of 1933 in the US is a prime example. There are others: Italy 1935, Australia 1956, Great Britain 1966 to mention just three.

By the 1960s, they began to offload some of this gold most likely due to the sheer oversupply of fiat currencies flooding the monetary system under the Bretton Woods system. But from 2008, Central Banks around the world have become net buyers of gold. More recently, Forbes reported that Central banks accumulated gold at the fastest pace on record in the first two months of 2023, according to a report by the World Gold Council’s (WGC) Krishan Gopaul. In January and February, central banks collectively bought a net 125 tonnes of the metal, the highest amount for the year-to-date period since banks became net buyers in 2010.

The countries reporting the largest purchases in the first two months were Singapore (51.4 tonnes), Turkey (45.5 tonnes), China (39.8 tonnes), Russia (31.1 tonnes) and India (2.8 tonnes). Notice that three of the five largest gold purchasers are BRICS countries. Perhaps increasing gold reserves will be the only legitimate way to challenge the US dollar hegemony because gold stands in total contrast to fiat currencies; a universal store of value that transcends geopolitical boundaries and uncertainties.

Here is the absurdity of doublespeak in a classic exchange between Ron Paul and Ben Bernanke (Chairman of the US Federal Reserve), July 2011:

Ron Paul: “Do you think gold is money?”

Ben Bernanke: (long pause) “No.”

Paul: “It’s not money?”

Bernanke: “It’s a precious metal.”

Paul: “Even if it has been money for 6,000 years, somebody reversed that and eliminated that economic law?”

Bernanke: “Well, it’s an asset. Would you say Treasury bills are money? I don’t think they’re money either, but they’re a financial asset.”

Paul: “Why do central banks hold it?”

Bernanke: “Well, it’s a form of reserve.”

Paul: “Why don’t they hold diamonds?”

Bernanke: “Well … it’s tradition – long-term tradition.”

Paul: “Well, some people think it’s money.”

As Saifedean Ammous pointed out, “It is ironic, and very telling, that in the era of government money, governments themselves own far more gold in their official reserves than they did under the international gold standard of 1871 – 1914. Gold has clearly not lost its monetary role…”

So, is the gold standard over? Have governments really abandoned gold? Clearly not. At least to some degree, government currency is still backed by gold reserves, or backed by currencies backed by gold, even if this is not admitted in polite monetary circles. It seems obvious to anyone willing to consider the facts that governments are very much of the opinion that gold remains an important monetary metal. While they preach fiat, print fiat, and force all payments to be made in fiat, an argument can be made that they are keeping themselves on a covert gold standard.

Should you not be doing the same?