Guest Post: Are There Any Currencies Backed By Gold?

Tyler Durden's picture

Submitted by Simon Black of Sovereign Man

Are There Any Currencies Backed By Gold?


That’s the only way to describe the reaction that future historians will have when they look back and study the utter perversion that is our global financial system.

We live in a time when a tiny handful of people have their fingers on a button that can conjure trillions of dollars, euro, yen, and renminbi out of thin air. In the United States, it comes down to one man. Just one.

With a single decision, he controls the lever that dominates the entire economy. When you control the money, you control everything– financial markets, consumer prices, risk perceptions, investment habits, savings rates, hiring decisions, pay raises, sovereign debt, housing starts, etc.  One man.

This irrational, arrogant system presupposes by design that a central banker is smarter than everyone else; that markets are incapable of determining appropriate risk and value; that he is more effective at allocating our time, capital, and labor than we are.

Future historians will probably also be dumbfounded when they see how long people allowed worthless, unbacked fiat paper to pass as money.  It’s extraordinary that most people today happily accept a digital abstraction of paper currency controlled by a single individual as ‘valuable’.

It was more than 5,000 years ago that primitive commodity money was used in Mesopotamia, and it’s been over 3,000 years since metal coins began circulating.  For more than 99.2% of human civilization, money actually meant something… right up until 1971 when Richard Nixon ended any remaining link between the dollar and gold.

Ever since, the US government has refused to acknowledge precious metals as money… yet if the Treasury’s financial statements are to be believed, Uncle Sam is still holding  261,498,900 troy ounces of gold. Let’s dismiss the tungsten possibilities for now and presume that it’s real gold. At today’s prices, the value would be about $437 billion.

Meanwhile, M2 money supply at last count was about $9.8 trillion as of March 12, 2012. This means that roughly 4.46% of US dollars in circulation are ‘backed’ by gold, the rest backed by false promises and goodwill.

In the UK, the government’s Exchange Equalisation Account shows 9,971,000 troy ounces of gold on the books. At today’s market value (1,054 British pounds) and the Bank of England’s most recent statement on reserve balances and notes (259.5 billion pounds), Britain’s gold supply constitutes roughly 4.05% of pounds in circulation.

Simply put, the price of gold would have to rise 20-25 times in order for the US and British governments’ gold assets to match the supply of money in circulation.

In fairness, very few countries hold meaningful gold positions when compared to their money supplies. Even Singapore, generally regarded as having one of the healthiest balance sheets on the planet, holds a mere 2% of its money supply in gold.

(Singapore does, however, consistently run budget surpluses and control two sovereign wealth funds which manage the equivalent of 130% of GDP…)

Lebanon is an exception. According to Banque du Liban statistics, the value of Lebanon’s gold holdings is equivalent to nearly 50% of the country’s money supply. To boot, Lebanese banks tend to have very high liquidity ratios and are willing to open accounts for most nationalities.

The problem with Lebanon is that the country is deep in debt– well over 100% of GDP.

With an additional $30 billion in foreign reserves on the books (i.e. other people’s paper), though, Lebanon does have the capacity to pay off over half of its debt. And there are a number of state-owned companies that could be privatized to generate even more revenue.

Given the how sophisticated government corruption is in Lebanon, though, such solutions may never come to pass. Go figure… the one place on earth where the currency is actually backed by something becomes the next shoe to drop.

Fortunately there is another place worth considering. For now, gold only comprises about 5% of Mongolia’s $4 billion money supply. Not much. But the important thing to pay attention to is the trend.

A few months ago, the government of Mongolia nearly doubled its gold holdings to 3.5 tons. This is a huge move.

Given the massive resources in the country (coal, copper, gold, oil, uranium, etc.), Mongolia is set to become one the world’s richest countries. And I think we can expect them to continue trading out paper reserves for the gold that’s already under their soil.

It’s possible that, if the trend holds, Mongolia’s gold holdings will back 10% to 25% of the tugrik money supply in just a few years’ time. Over the same period, gold holdings in the US, UK, and Europe will probably decline to less than 2% of their perpetually inflating money supplies.

Moreover, bank accounts denominated in the Mongolian currency (tugrik) yield an impressive 13% to 15% for savers.  As far as paper goes, this one actually may be worth betting on.

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Cult_of_Reason's picture

Chinese Copper Speculation Bubble Burst?

...They don't get shipped to end-users because they were bought for speculative reasons," said a warehouse manager at the port...

...The average time these copper stocks spend in bonded warehouses have stretched on to nearly one year from just two months in the past...

Pladizow's picture

Francisco d’Anconia, one of the central characters in the novel Atlas Shrugged by Ayn Rand, explains the following in his famous “money speech”:

“…Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or the looters who take it from you by force. Money is made possible only by the men who produce… Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into bread you need to survive tomorrow… Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values… Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims…”

johnu1978's picture

Silver may be the poor man's Gold, but Copper is the very poor man's Gold! :o)


Wild Edible Tours



I'm still waiting for the 9 trillion dollar "loss" or "misplaced" or "missing" funds by the FEDS..Anyone know where it went? LOL

smiler03's picture

I preferred the Simon Black that told us of his journeys around the world meeting Presidents, Prime Ministers and Entrepreneurs.

The same Simon who loves his paid for communal farm in Chile with 7035 partners, the land is pollution free, the most fertile on earth, everything is organic.

He personally backs friendly, obviously honest, chatty people in countries without corruption. Western Union is always the safest way to make transactions with Africans. If you're in New Zealand, your Bolivian bank will transfer your money to Tuvalu within seconds, no charge.

At the shops in Chile he can pay for ultra cheap produce in US Dollars, Swiss Francs or even Zimbabwe dollars, nobody cares, everybody is wonderful.

He has 75 passports and has bank accounts in 529 countries, some of which pay 201% interest per month, even if he's overdrawn.

Simon Simon, come back to us, I miss you!


SilverRhino's picture

Amazing .... 

14% Annual interest on a fixed term account.    Try getting that ANYWHERE in North America.




smiler03's picture

Amazing indeed. I presume you'll take advantage.... but.... a few conditions to comply with.. which I'm sure you took into account....


  • Foreign passport.
  • Completed "Account opening application form"
  • Resident permit


For nonresidents, the bank opens accounts on case by case basis, which requires additional KYC documents such as (but not limited to) bank reference and employer reference. 

Oh, and the USD interest rate is 6%, I presume you read that or maybe you are thinking of saving in Mongollan tögrögs.

Put your money in there, if you dare. I'm sure the IRS will be very pleased. 

smiler03's picture

I have to say this....

There are some ridiculously ignorant idiots on ZH. When I first found this site I remember telling my Wife, "There are a lot of very intelligent people on here".

I've changed my mind and I'm counting the days 'til I lose it and get banned or beg Tyler to delete me.


prole's picture

But what are we muppets going to do without your especial brand of sarcasm sir?

We already lost Trav/Beavis .. Don't desolate us ....

hedgehog9999's picture

Banks do it all the time, they borrow from Fed at near zero% and then buy debt on countries like Brazil, Mexico CETES , etc at 4 to 5 or even 8% in some cases, just leveraging 3 to 1 you have risk free 14%....

scared about not being paid back or currency being devalued?.

No problem!, just leverage a little more and then buy credit deafult swaps while at the same time setting up an equally leveraged short position on the Mexican Peso or Brazil real just in case the bottom falls off on these currencies......

Banks do it all the time , thanks to Ben and their other fed friends, I wish we could borrow that easy and leverage like they can to earn risk free money, everything else is a side show to keep the concern and their tentacles going........

Banks are riddled with schemes like these, hence $700 Trillion in derivatives from which they constantly skiim (suck the interest from most countries in the world.

Technically US T-bonds would require more leverage to earn 14% but then someone has to buy all that debt and fed forces their primary dealers to buy it. But then the fed buys debt back from the primary dealers or takes it as collateral for even more loans to continue this circular process. It can go forward quite a bit longer before it all implodes at some point.

This is helped by the fact that most everyone is playing the same game these days. That keeps relative overall inflation in check....while the standard of living of most everyone except the elites is steadily going down.

At some point it will end, we got a few more years to go..........




vmromk's picture

Hey Bernanke, FUCK YOU

nuinut's picture

Q: Are there any currencies backed by gold?


A: Can the currency in question be exchanged for gold.... if so, then it is backed by gold.


Why should governments exchange their gold for currency when the marketplace already does this for them, at no expense to govt?

Fact of the matter is the entire system still is and always was "backed" by gold, and this is the only reason that it even continues to operate. Once currencies are no longer exchangable for gold (because no one with gold is willing any longer to exchange it for currency) then the system ends. There is no better metric for this event.

By manipulating both the "price" and people's perceptions of gold, it is made sure that there are plenty of sellers (aka weak hands) and traders who don't understand the role of gold in the monetary system (the bedrock) and are willing to "trade" it willy-nilly and even accept paper claims in lieu of the real thing thus ensuring a continuous flow of gold for currency and the continuation of our celebrated dollar-based system (backed, ironically, by gold).

Don't tell anyone though, okay?


nuinut's picture

There is never too much currency nor too little gold, just an incorrect rate of exchange.



prole's picture

I agree with nunit (except for the incorrect rate of exchange part)

All Paper scrip are backed by gold at floating rates. Currently Bernanke Bux can buy one ounce of gold at rate of 1660 per ounce with some modest (2%? ~ 6%?) premium. Pound, Euro, Yen same story. Only absolute joke currencies like North Korean JokeWon and Zim Dollar if one even still exists probably no amount can buy one ounce of gold.

When no amount of X currency/scrip can buy one ounce of gold, and the .gov sponsoring the scrip also refuses to honor it by selling gold at the price, then that scrip has officially collapsed. I doubt the US will ever get there, ponzi masters have taken their game to a new level. They can buy print mint tax and control the game to such a level that we muppets are just hamsters running on a wheel, while they laugh and control all.

If you own some fiz you get to hop off the wheel for a while that's all that is my opinion muppet master.

Ghordius's picture

right you are - and perception is everything...

and, of course, "run budget surpluses" - but this is of course hard - plenty of though choices this way

hmmtellmemore's picture

A: Can the currency in question be exchanged for gold.... if so, then it is backed by gold.


Convertability from paper to gold is always possible, of course.  But the important distinction is that there is no offical "peg" from paper to gold that forces central banks & treasuries to be careful with printing.  If there was, then you could save that currency in cash with less fear of inflation.

BigJim's picture

Indded, convertability of paper for anything of value at all is the test of that paper's acceptance as money.

mkkby's picture

By that definition the dollar is backed by tulips and pet rocks.  Anything you can exchange, right?

SheepDog-One's picture

Yea well the way things are going, there may not be any future historians.

pashley1411's picture

I saw it on a Mayan stella, about 850 AD.  "And then they discovered fiat money".   A few more temples, and then the civilization disappears shortly thereafter.

rosiescenario's picture

....I think you translated this wrong, replace 'fiat money' with cocaine....

hedgeless_horseman's picture



In the United States, it comes down to one man puppet. Just one.

Malkovich Malkovich Bernanke Bernanke.

malikai's picture

I liked 'Being Ron Jeremy' better.

rajat_bhatia's picture

try the Indian Rupee. as close to gold as possible, 20000 tonnes of it, in indian households, $20billion of it in a recently discovered Hindu temple

Buckaroo Banzai's picture

Last time I checked, the Swiss had enough gold to cover all the Swiss Francs in circulation-- and then some. Although, legally speaking, the Franc has been an unbacked currency for a few decades now.

akak's picture

Apparently, then, you have not checked for 60 or 70 years.

For many decades, the Swiss Central Bank held a 40% backing of the nation's total money supply in gold, but even that requirement was abolished by the referendum of 2000, after an insidious pro-bankster campaign and propaganda barrage led by the IMF.

Quisat_Sadarak's picture

He who controls the specie controls the universe!


Ghordius's picture

...and some "help" by the US Government. And the British. And the French. And...

though, in truth, the currency was getting too "hard" - it's though to have a very hard currency while the others soften continuosly, this is why currency wars happen at all.

BigJim's picture

Yes, one of the conditions of entry to the IMF is removing a currency's peg to gold, because the IMF was set up along with Bretton Woods, which stipulated that only the USD was pegged to gold, and everything else was pegged to the USD.

Stupid Swiss. Still, they held out longer than the rest of us, you have to give them that.

SilverIsKing's picture

He makes it sound like FRNs are worthless pieces of paper.  They are backed by the full faith and credit of the US Government.  Who the hell made up that line, "full faith and credit of the US Government?"

I must thank them for the laugh.

rosiescenario's picture your saying at one time it was backed by a "credit" which has now morhped into a "debit" each FRN represents a share in the Fed's deficit?

yabyum's picture

I am powerless to say what my country will do. However the house of yabyum is backed by PM's

perchprism's picture


So also is the House of PerchprisM.

Theta_Burn's picture

Future historians will be shocked that we made it through these dark days at all.



mick_richfield's picture

You have an assumption there that you ought to think about real hard.

akak's picture

Central planning ALWAYS fails, and Bernanke, in his academic arrogance and cluelessness, is as pernicious and bumbling a central planner as was any apparatchik in the old USSR.

zerozulu's picture

Bernanke knows what he is doing. It is the 99% who fucken have no idea what is happening with them.

Vincent Vega's picture

From now on I'm going to demand that my employer pay me in the 4.46% of USD backed by gold...problem solved.  /s

Freegolder's picture

Eurosystem gold reserves: 65% and rising. Enough said.

akak's picture

But with no formal or practical tie between those gold reserves and their increasingly debased fiat currency, also meaningless.

I don't know where this wild notion comes from that the euro is somehow more "hard" a currency than the dollar, the yen, the pound, or any other piece of shit fiat currency imposed on us by near-totalitarian governments.

manhunter's picture

Wrong. You can go in any bank in Europe and exchange euros for gold, at the 'floating price'. This is much more powerful than a fixed gold standard.

Do you know what % of reserves gold made up at the beginning of the euro? Hint: less.


akak's picture

Wrong. I can do the same thing in the USA or Canada --- that does not in any way make either of the currencies of the USA or Canada "backed by gold".

manhunter's picture

You can get gold from the teller window in USA? Which one?

Again, not gold backing, exchange reserves. There is a difference. See the quote from ANOTHER below. The euro will survive, not that the fate of the euro matters to me. Freegold is our destination with or without the euro.

akak's picture

I will NEVER put my faith in ANY government-issued fiat currency, under some mythical Freegold scenario or in any other.  Anyone suggesting or advocating that we MUST always continue using government-issued, unbacked fiat currency, instead of free market money, is either a dupe for TPTB or a monetary saboteur.

The issuance of money MUST be divorced from the state, just as religion has been, and for even better reasons.

manhunter's picture

It doesn't matter what you put your faith in. It matters what the Giants put faith in, and they have chosen gold. The euro was designed for them, not you.

The euro is a reserve currency for trade that is not also trying to be a wealth reserve. It solved the Triffin dilemma by not trying to be as good as gold - its juts a trade currency. The Euro is a product that the marketplace will freely choose to conduct trade (not to store wealth), because:


If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will hoard all gold and buy any offered if this new European currency does not work" and "debt currencies fail". If this does come, no paper asset of world economic system will survive, nothing! Not a good thought, no? Thank You


akak's picture

The Euro is a product that the marketplace will freely choose to conduct trade

Why would the free market ever chose an unbacked, government-issued, infinitely inflatable fiat currency, when much better choices are available?  (or would be, anyway, in a truly free market).  When has the free market EVER made such a choice, when such a choice was available?    WHY do you continue to advocate for monopolistic, totalitarian, government-controlled currency over free market money?

Your argument makes no sense, and is contrary to ALL of monetary history.