The focus of Ralph Benko’s latest Forbes article is on the latest breakthrough of the gold standard into “mainstream” economic analysis. Specifically, he focuses on two events in Germany: the first is the Deutsche Bank, which just published a paper acknowledging gold as an “officially recognized” medium of exchange. The second is a speech by Herr Dr. Jens Weidmann, president of the Bundesbank, which praises gold for its “function as a medium of exchange” and even manages to work in a Faust reference.
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American Principles In Action
Signs Of The Gold Standard Are Emerging >From Germany
Indeed, the fact that central banks can create money out of thin air, so to speak, is something that many observers are likely to find surprising and strange, perhaps mystical and dreamlike, too – or even nightmarish.
— Jens Weidmann
On September 18th, the London office of Deutsche Bank — one of the most respected banks in the world, and a bellwether of elite opinion — published a Global Markets Research paper entitled Gold: Adjusting for Zero. It was written by two esteemed, mainstream analysts Daniel Brebner and Xiao Fu:Figure 7: USD devaluation vs. gold (rebased) log scale
[G]old is not really a commodity at all. While it is included in the commodities basket it is in fact a medium of exchange and one that is officially recognised (if not publicly used as such). We see gold as an officially recognised form of money for one primary reason: it is widely held by most of the world’’s larger central banks as a component of reserves. We would go further however, and argue that gold could be characterised as ‘‘good’’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies.
The conclusion from our overview of gold functionality is that the key difference between good and bad money is scarcity (imposed supply discipline could be another way of describing this). Fiat currencies can be scarce but this scarcity may change on a whim which may both impact its tenure as currency and/or relegate it to being characterised as bad money. Gold is truly scarce, having a concentration of around 3 parts per billion in the Earth’s crust.
In 2011 Deutsche Bank enjoyed revenues of €33.2 bn. In 2009 Deutsche Bank was the largest foreign exchange dealer in the world, with a market share of 21%. We have come a long way from the view of gold as an artifact of the “bleak” and “dystopian” (as characterized by the Wall Street Journal).