Is Gold An Important Part Of The Monetary System?
All transactions and investments come with a certain degree of risk. Gold bullion prices can fluctuate as well, but in comparison with those of currencies, it is considered to be extremely stable. This and the fact that this metal is a value in itself contributed to the decision of all countries to keep their reserves in gold. This decision was also made by the World Central Bank. So, converting your assets and profits into gold is one of the best things one can do to fight the uncertainty the future holds.
The importance of gold has been demonstrated over the ages. Analyzing its history is the perfect the way to make sure of that. During normal times, and especially during the wars, currency fluctuated. For example, during the First World War, currencies lost almost one hundred percentage of their purchasing power. But just before that, big loans were made, that were supposed to be paid after the value of the currency would be lower. Periods like this were followed by periods of attempts to reestablish the level of inflation. Disinflation was consequently followed by contracting higher loans, and instability and even depression. All this had to be fought with a reevaluation of gold when attempt to reform the monetary system were made. Its price was set higher.
Another important problem would be the topic of gold standard. Gold standard is actually a monetary system, meaning that the weight of the precious metal becomes the accepted economic unit of account. In conclusion gold becomes the common benchmark in establishing the prices of all the goods.
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.
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