Whither sovereign currencies?

August 18,2010 – Title change. Previous title: Are we comfortable holding our respective national currencies?

Since about 2000, the Swiss seem to prefer gold to the Swiss Franc

What about the Europeans?

And the Canadians?

How about the Australians?

Surely the ultra fiercely nationalistic Japanese prefer holding their own sovereign currency?

So, where does that leave us?

The charts above tell us that since about 2000, individuals and investors world wide, are gradually abandoning the sovereign currencies of developed industrialized countries for gold.

Historically, gold is the only true money. Gold has been around as a store of value and a medium of exchange for the entirety of human existence. Fiat currencies, i.e. the variety of currencies that all countries have gradually moved to since 1913, are only a medium of exchange. Gold is not only a medium of exchange but also a store of value.

The fact that economic actors prefer to hold gold rather than sovereign currencies is indicative of diminishing trust in the monetary system. But in a fiat monetary system, because fiat money is a political construct, diminishing trust in money is unequivocally and necessarily indicative of diminishing trust in government.

Naturally, there is a select number of officials that are aware of this and are aware of the ramifications of this trend. Hence the strenuous efforts to discredit the role of gold and discourage the use of it. To wit, other than strident press articles exhorting the public to steer clear of gold and gold investments (see Willem Buiter as one example amongst many) very little is reported about the ten year run in the price of gold bullion. In fact, despite empirical evidence to the contrary, your banker, your broker, Wall Street “professionals” and government officials in general, are still telling you porkies about the presumed “long term” returns of the stock market. What is not clear is what “long term” is. Is two years long term? Is five? How about ten?

For now gold is a sound investment to protect your wealth. This will be so for as long as a number of trends do not reverse (quantitative easing and bailouts for example but there are many other aberrant trends that must be halted in order for the public to regain faith in currencies). This is so now till it will no longer be the case.

A bon entendeur…

You can see more of the charts I maintain for the public at: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3585763

August 8th

No doubt moved by unwavering national pride and a sense that God will surely save the Queen, one of the rare readers of this blog points out that I didn’t include the Pound Sterling in the above charts. Indeed it was an omission so let’s see whether after no longer ruling the waves Britain may at least rule the currencies…

Hmmm! This is not completely a surprise. After all, Gordon Brown was the man that pin-pointed the bottom of the price of bullion when he sold a chunk of the nation’s reserves way back-when around the turn of the new century thus, in one fell swoop short-changing the British treasury and public.

Sic transit gloria mundi or some such.


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4 Responses to “Whither sovereign currencies?”

  1. And for the most recent “WTF!” moment… « Guido's temple of the absurd Says:

    […] in a debt based fiat monetary system where the authorities are hell bent on conveying the idea that gold is a barbarous relic, buying, holding or selling gold is not an activity that should be subject to state approval and, […]

  2. Let’s hear it for consistency – hip, hip… « Guido's temple of the absurd Says:

    […] of fiat money and the preeminence of government when I wrote about currencies and gold in a previous post. Now, obviously uncertain as to whether he’s made himself clear, Mr. Buiter offers what can […]

  3. James Says:

    Sic transit indeed.

    Ah, Guido, we readers are not so rare! Thanks for all your work, and thanks for sharing your thoughts with us.

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