The significance of gold in grand strategy is usually underrated. This misconception is the result of open denigration for the economist who believed on its superiority for the national power. For some (John Keynes) it was a ‘barbaric relic’ while for others (Ben Bernanke) it was merely a ‘tradition of past’. The two types of views carries with them their own pros and cons pining to one may mislead us from the side!
The importance and use of gold from the time immemorial have found their existence in all human civilizations as a source of power, wealth and prestige. Royal robes, jewellery, bullions and coinage all have their foundation in this yellow metal! The society, culture, mass psychology all have an implicit or explicit hint to its valuation. Thus gold was valued more on the strategic scale than on the mercantile one.
Also Read: Energy in Politics, Energy for Politics
Individuals, nation-states and financial institutions all consider gold as a bulwark against any type of uncertainty whether it may be political, economic or social one. All views gold a sold protection against such topsy-turvy.
Famous goldsmiths in history are often the founders of famous banking systems. It was its adaptability, its scarcity as gold could not be printed like currency notes by a government plus with its universal acceptability among different civilizations and cultures that gave it a Universal Measuring Scale among them for their trade and business.
It was this long-term credibility of gold as a monetary-stabilizer that United States used for the global dominance of US dollar in face of other competitors to it. The practicality of this notion made US dollar dominant on the World stage!
The United States’ 8133 tons of gold is approximately 76 percent of its total foreign reserves which the US Federal Reserve Bank keeps with itself then followed in queue by other countries like Germany, Italy and France in 2022.
With the fact that intelligentsia are debating the theoretical aspects of gold, central banks effectively views gold as a most reliable money than the fiat one. Hence the reason for the accumulation of gold by nations whether strong or weak according to their economic growth and power.
2022: Top 15 Countries with the Largest Gold Reserves (in tons)
- United States — 8,133
- Germany — 3,359
- Italy — 2,452
- France — 2,436
- Russia — 2,299
- China — 1,948
- Switzerland — 1,040
- Japan — 846
- India — 785
- Netherlands — 612
- Euro Area – 505
- Turkey – 489
- Taiwan – 424
- Uzbekistan – 390
- Portugal – 383
However, the official numbers should be taken with a grain of salt. Some analysts assert that China’s actual gold reserves may be significantly greater than estimated one (Beijing gold import in 2021 was 818 tons).
As a result, strategic nerve centres have consistently recognized the significance of gold for national interests, either implicitly or explicitly.
It was this regulating value of gold which was used by Montagu Norman in the Bank for the International Settlement (BIS) in 1930s as a barrier and judging criteria for avoiding any unlikely situation in the international financial system.
Interestingly after Montagu Norman estimation of gold, the fortification of gold in different parts of England was spurred on to protect them from any type of popular uprising or foreign aggression.
Their trans-Atlantic cousin, United States of America, also does not store its gold reserves in bank safes or warehouses. Exactly like them US gold reserves are stored in military bases like Fort Knox or West Point. Though they differ and debate on the theoretical value of this yellow metal but action speaks louder than words!!
Both President Maduro and President Guaido appointed two different governors to the Central Bank of Venezuela. The Bank of England refused to authorize Mr Maduro to this gold saved in its vault. Upon which the government of Mr Maduro sued the Bank of England to surrender this gold to his government but UK Supreme Court finally turned downed his plea. The reason being he was re-elected as a President in very dubious and questionable elections in May 2018.
Whatever may be the school of thought, Classicism, Neoclassicism, Keynesianism or anything else, the gap between politics and economics are hardly discernible.
The new emerging Eurasian powers that is former Soviet satellites and China would use gold as strategic weapon to undermine the US dollar hold in the international financial system because it may give them the potential to reshape the balance of power on the international stage where geopolitics and finance intertwine. Paper currency, the financial systems and instruments associated with them may face a disruption and roller-coaster but the gold in physical form is immune to any such danger.
The local and regional political dynamics also changes with moving-in and moving-out of this gold. The Rapid Support Forces of Mohammad Hamadan Dagalo in Sudan 2013-2014 became so strong that it replaced the legal Sudanese civilian government in the Darfur region and war and nearly went out-of-control from the legitimate control of the Sudanese government.
The final point that comes to fore is that the mounting social, political, economic, local and foreign factors would contribute to rising importance of gold and gold deposits in near future and it would remain a key note of international politics.