What if all the gold in a certain country disappears overnight?
This is an assumption that is difficult to implement in the real world.
1. Let’s first look at what gold is? Gold was once currency, it was once the "collateral" (gold reserves) for banks to issue banknotes, and it was once the reference for determining currency exchange rates around the world (Bretton Woods system). However, since the United States became overwhelmed and discovered that gold was rapidly flowing to benefiting European countries, it announced the dissolution of the Bretton Woods system and replaced it with the Jamaica Agreement. This agreement clearly stated that the U.S. dollar would no longer have an exchange relationship with gold, and gold would no longer be used as currency. This agreement continues to this day.
So today's gold is like this: a. It is no longer a currency or currency equivalent b. It no longer determines the exchange rates of countries around the world. So gold has only one attribute left: a store of value.
2. Why is gold a store of value? This can be easily explained. Under short- and medium-term fluctuations, the trends of the U.S. dollar and gold are completely opposite: when the U.S. dollar rises, gold falls, and when the U.S. dollar falls, gold rises. The reason is that in today's world, "US dollar" and "gold" are the two major means of value-preserving investment. They compete with each other and have complementary trends. This also explains very well why the reserve assets of most countries are divided into two parts: gold reserves and foreign exchange reserves.
3. So if all the gold in the world disappears overnight, the direct impact will be that assets around the world evaporate. For countries with high gold reserves, such as the United States, Germany, France, Italy, and China, the amount of asset losses will be very huge, and the evaporation of assets will mean the currency devaluation of some countries---especially those that have gold reserves. Countries with the majority of asset reserves: the United States 78%, Germany 71%, France 72%, Italy 66%, Portugal 90%, Greece 92%, the Netherlands 61%, and Switzerland 41%. So the dollar and the euro will plummet. In contrast, some countries do not regard gold as an important asset reserve, such as: China 0.9%, Japan 2%, and Russia 4%. In the first round of collapse, these currencies were able to survive, but...the collapse of the US dollar and the euro was not due to excess liquidity, but due to the rapid reduction of national reserve capital. Therefore, any monetary policy cannot return to normal. level. Then the international financial market order will face a devastating blow, international trade that relies on US dollars or euros for settlement will be forced to interrupt, and a major recession in the world economy will be inevitable. The Great Economic Recession will trigger regional turbulence and even the outbreak of a war of a certain scale: Since assets are already extremely scarce, only by plundering other countries' assets through force can we maintain our current living standards. The possibility of large-scale regression of human civilization will increase.
4. What if all the gold in a certain country disappears? This hypothesis actually has an example: Greece. In 2009, the new Greek government announced that the country's fiscal deficit was fraudulent. Originally thought to be 3.7% of GDP, the fiscal deficit suddenly soared to 13.6%, an increase of nearly US$36 billion. At that time, Greece's gold reserves were about 110 tons. If the average gold price in 2009 was US$1,000 per ounce, it would only be US$3.6 billion, less than 1/10 of the deficit gap. Then overnight, Greece became a country of extreme poverty, with citizens rioting, the government on the verge of bankruptcy, and social operations stagnating. The sovereign bond issues of EU countries triggered by this fuse are basically the epitome of the above extreme situation of "gold disappearing all over the world".
5. So why can’t gold be replaced with something else? If it is only used as a store of value, seven precious metals other than gold: platinum, silver, palladium, rhodium, iridium, ruthenium, and osmium can all store value. But the problem is that in the short term, except for silver, other precious metals cannot be stored in the market. Provides a large amount of storage available in the short term - after all, humans have been smelting and storing gold for thousands of years. At the same time, although other precious metals and gemstones have an advantage over gold in terms of unit price, they lack a circulation market and a derivatives market linked to them. Therefore, even if they can be used as a store of value for ordinary individuals, it is difficult for them to play the role of gold in the international market.
According to scientists' inference, gold comes from meteorites colliding with the earth. It is indeed an interesting inference! How come one day, all the gold in the world accidentally evaporates, perhaps because aliens want to take back the gift they accidentally gave to the earth! Then Bitcoin may naturally enter the stage of history and assume the responsibility of the world currency!
Leave a comment