German Central Bank Doesn’t Rule Out Gold Revaluation
The comments below are an edited and abridged synopsis of an article by Jan Nieuwenhuijs
The more debt is being accumulated on the balance sheets of European central banks, the more likely they will revalue gold to write off this debt. When the German central bank was asked if it would consider this option it said: “At this stage, we prefer not to speculate about any potential decisions… that might or might not be taken in the future.”
Government debt-to-GDP levels in many countries are at record highs and no one seems to have a clear strategy to lower the debt burden. Technically, there are six ways to lower government debt to GDP: Economic growth; default; higher taxes; austerity; debt relief; and inflation.
Options 1, 2, 3 and 4 are not viable, which leaves debt relief and inflation. Inflation is elevated and shifts wealth from savers to debtors. Can inflation stay elevated and solve the debt problem without destabilization? When people on lower incomes can’t make ends meet, they tend to revolt. Social instability leads to political instability, which leads to monetary instability, which leads to more social instability.
Nieuwenhuijs discusses revaluing gold to write off bad debt and a new global standard, which would require central banks to set a floor price for gold. If a central bank uses its revaluation account fully, gold ideally doesn’t fall back or the bank will incur unrealized losses. The central bank would need to stabilize the gold price, which is a form of a gold standard.
When it comes to revaluing gold, Europe will likely take the initiative because revaluing gold will damage the US dollar’s status as world reserve currency. The euro is the 2nd-most liquid currency globally, enabling the eurozone to revalue gold, by printing euros and buying gold, without devaluing much against other currencies and commodities.
Still, European central banks would face risks in revaluing gold as they can’t know how much gold to buy, and thus print euros for, at what new price. Countries outside of Europe will also purchase gold, as they too have a debt problem.
By revaluing gold, bad debt can be written off and the new price will cause the currency in circulation to be sufficiently backed by gold. A reset offering a new international monetary system.