China may be considering making gold its official currency.
The Future of Freedom Foundation has posted an interesting article on what this may mean to the U.S. if China goes this route.
In response to the U.S. government’s weaponization of the dollar through such measures as sanctions and trade wars, China, along with Russia and other nations, are making efforts to dethrone the dollar as the world’s international reserve currency. For example, Russia and China are now using the Chinese yuan, rather than the dollar, for payment for Russian oil. Saudi Arabia is now talking about doing the same thing.
One of the interesting aspects of this process involves gold. According to an article at Forexlive, China has purchased 62 tons of gold in the last two months. China’s gold reserves now total 2,010 tons.
An article at BNP Paribas Asset Management by Chi Lo, the company’s senior market strategist for Asia and the Pacific, speculates that China might be considering making its currency convertible into gold. Lo writes: “Making the renminbi convertible into gold effectively turns the currency into a global investable asset for foreign renminbi owners, boosting their confidence in and demand for the Chinese currency.”
What effect would that have on the U.S. dollar? It is impossible to say. But one thing is for sure: The U.S. dollar promises to pay nothing. Ever since the 1930s, the U.S. official currency has been irredeemable paper. When given a choice between paper that promises gold and paper that promises nothing, will the world stick with the U.S. dollar?
The irony is that if China, which is ruled by a communist regime, decides to make gold its official money, it will essentially be copying the monetary system that America had from the founding of the United States until the 1930s.
America’s monetary system was established by the Constitution, which is supposed to be the highest law of the land. It gave the federal government the power to coin money but not print money. It also prohibited the states from making anything but gold and silver coins legal tender.
It was the finest monetary system in history, especially since there was no Federal Reserve to debauch the value of the currency by printing gobs of paper money. But it all came to an end in the 1930s when President Roosevelt nationalized gold, ordered Americans to surrender their gold to the government, and made it a felony offense to own gold. It was all done without even the semblance of a constitutional amendment.
The result has been a continual drop in the value of the dollar ever since the 1930s. That’s because the Federal Reserve, decade after decade, has flooded the economy with newly printed paper money to finance the ever-increasing costs of America’s welfare-warfare state way of life.
Why do you think some of us are buying gold and silver?
Before federal reserve notes (irredeemable paper money), we had Silver Certificates (remember them?).
What was a Silver Certificate?
From Professional Coin Grading Services (PCGS):
The Story Behind Silver Certificates
Originally issued for the redemption of silver on demand, Silver Certificates were originally authorized by two Acts of Congress in 1878 and 1886 and in denominations ranging from $1 to $1,000. The notes underwent a series of changes over the years, including designs, physical sizes, and legal tender obligations (as declared on the obverse of the notes).
The obligation on the Series 1957 $1 Silver Certificate states, “This certifies that there is on deposit in the Treasury of the United States of America [one dollar] in silver payable to the bearer on demand… This certificate is legal tender for all debts public and private.”
When these notes were originally issued, someone with these notes could have walked into a typical bank and would expect to receive silver coins amounting to the face value of the Silver Certificates surrendered in that transaction. So, in the late 1950s or early 1960s, that may have meant trading in a Series 1957 $1 Silver Certificate for a Morgan Dollar or Peace Dollar, large silver coins that were still readily available for face value during that time.
However, around 1963 the price of silver increased to the point that 90% silver Dimes, Quarters, Half Dollars, and Dollars were suddenly worth more for their intrinsic bullion value than for their face value. This led many people to begin hoarding silver coins, removing them from circulation in massive numbers and resulting in a nationwide coin shortage.
The United States government acted quickly in response to the rapidly changing situation. On June 4, 1963, Congress abolished the production of Silver Certificates. Five years later, on June 24, 1968, an Act of Congress stopped any further redemption of Silver Certificates for silver bullion. Silver Certificates were eventually replaced with Federal Reserve Notes, which remain in use today. However, Silver Certificates still retain legal tender status for obtaining Federal Reserve Notes of the equivalent value.
Note: Which political party was in control when gold was nationalized and what political party was in charge when Silver Certificates were abolished? (I'll give you one guess!) It is the same party who wants to do away with paper and coin money in favor of digital money.
To read more, go here.