Why do governments dislike gold

HalfDime

Why do governments dislike gold

Governments generally dislike gold because it imposes strict limits on their ability to control and expand the money supply. Unlike fiat currency, which can be created at will by central banks, gold is a finite resource that cannot be printed or easily manipulated. This makes it difficult for governments to finance deficit spending, bailouts, or other interventions without restraint.

Gold cannot be printed or created by decree, making it hard for governments to use it for monetary expansion or to control its supply. The existence of gold in the economy serves as a constant reminder of the potential weakness or instability of fiat currencies, undermining confidence in government-issued money.

Gold limits the power of central banks and governments to manipulate prices, wage rates, and interest rates through monetary policy. During times of crisis, people may turn to gold as a safe haven, which can embarrass governments and expose the depreciation of their currencies.

Despite this general aversion, many central banks still hold significant gold reserves. They do so as a form of insurance and as an asset that is not the liability of another government, even while publicly downplaying gold's importance.

Governments have also restricted or banned private gold ownership primarily to maintain control over monetary policy and the economy during times of crisis. When a country operates on a gold standard, the amount of money that can be issued is directly tied to the gold reserves held by the government. If citizens hoard gold, it limits the government’s ability to expand the money supply, which can be critical during economic emergencies like the Great Depression.

United States (1933): During the Great Depression, President Franklin D. Roosevelt issued Executive Order 6102, requiring citizens to turn in their gold coins, bullion, and certificates to the government in exchange for dollars at a fixed rate. This move was designed to prevent gold hoarding, which threatened the stability of the financial system and restricted the government’s ability to print more money to finance recovery programs. After collecting the gold, the government devalued the dollar by raising the official price of gold, effectively reducing the value of the compensation given to citizens.

UK and Other Countries: Similar restrictions were imposed in the UK and Australia, often as a means to stem currency declines or to maintain economic stability during turbulent periods.

India: The Indian government has periodically restricted gold ownership to control capital flight and reduce pressure on the national currency, often imposing high tariffs or requiring conversion of bullion to jewelry.

Underlying Economic Rationale

Preventing Capital Flight: Gold is a portable and universally recognized store of value. In times of uncertainty, citizens may convert their currency into gold and move it abroad, undermining the domestic currency and financial system.

Limiting Alternative Stores of Wealth: Unlike bank deposits or stocks, gold is not a liability of any government or institution, making it harder for authorities to control. By restricting gold, governments can direct savings into more easily managed or taxed assets.

Facilitating Currency Devaluation: By seizing or restricting gold, governments can devalue their currency without citizens escaping the loss of value by holding gold.

Violating gold ownership bans has historically carried severe penalties, including heavy fines and imprisonment. These measures were often justified as necessary for national security or economic recovery.

So while governments do not "hate" gold in an emotional sense, they view it as an obstacle to their ability to manage economies through monetary policy. Gold acts as a discipline on government spending and currency creation, which is why it has often been suppressed or sidelined in favor of fiat money systems.
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Fiat money is built up on trust, and eventfully that trust goes away.

derryb

@HalfDime said:
Why do governments dislike their currency being backed by gold

Fixed it for ya. Governments do like gold, especially when their central bank is controlled by the government. Central banks around the world (especially BRICS) have been on a gold buying spree resulting in recent record highs. However, as you pointed out, governments realize the competition between their currency and private ownership of gold, often resulting in capital controls on private gold.

Governments generally dislike gold because it imposes strict limits on their ability to control and expand the money supply. Unlike fiat currency, which can be created at will by central banks, gold is a finite resource that cannot be printed or easily manipulated. This makes it difficult for governments to finance deficit spending, bailouts, or other interventions without restraint.

This is only true if a government's currency is pegged to gold, something the US abandoned decades ago. I can't think of any nation today that has it's currency backed by gold.