Meric
“… gold allows the financial system to reduce it's dependency to itself.”
I am not quite clear on what you are saying there. I think that you mean:
“A central bank owning gold allows the viability of the financial system to be less dependent on the performance of the financial system”. (Correct me if I’m wrong.)
I am not sure how that can work given that gold owned by a central bank makes no measurable contribution to the financial system at all (unless the gold is sold, or leased and the proceeds or leasing fees contribute to government revenues).
It is sometimes thought that government ownership of gold encourages confidence in the value of currency issued by the government into the local financial system. But there is little evidence of this.
- The Russian central bank has been buying gold heavily in recent years, but this has done nothing to arrest the declining value of the Rouble;
- The Australian Government sold a large portion of its gold reserves in 1997 and the AUD has traded consistently above its 1997 price ever since;
- The United States has held the largest bullion reserve of any country in the world for almost 40 years but the US dollar index is at 40 year lows.
I will stick to my view that gold isn’t a particularly useful financial asset and that other factors are more important in determining the stability of a financial system than the gold owned by the local central bank. At best, gold is a commodity that can be traded for a profit (but there is nothing wrong with that).
Cheers
