Why governments don’t like goldDecember 27, 2021
Governments do not like gold because they cannot create it or print it. Some governments are so desperate to get their grubby pass on gold, so they create crazy and complicated tax systems. For example, the Indian government has imposed a rule that days gold importers need to re-export 20% of the gold in the form of jewellery. Yes, it does not make sense but that is the government trying to control an industry it hasn’t been able to control.
Governments have central banks that do buy gold but they own gold for reasons that are entirely different from those that ordinary people might have.
Why governments don’t like gold?
#1. According to legal tender laws, taxes can only be paid in the first currency of that country, not in gold.
#2. Industries that are under heavy government regulation cannot be bailed out if they are not using government-regulated fiat currency. Governments always try to control industries by setting regulations and the gold industry is no different. It, therefore, stands to reason that the government is held liable for the failure of those industries.
What went wrong?
During the 1930s global bank crisis, banks failed because of erroneous policy responses to problems. The banking crisis happened in the 1930s not only because of the government but also because of the cheque systems.
Back then, the gold standard was still being used but the US Governments and others could not print enough money without having more gold. The US government then proceeded to seize whatever gold ordinary citizens had and then proceeded to ban the ownership of gold by private citizens.
The United Kingdom decided to limit the amount of gold that citizens privately held to four gold coins. It also restricted gold imports by private citizens.
#3. Ending the gold standard meant that money had to be printed to bail banks out during that banking crisis.
Even though individual ownership of gold was banned, the gold market just went underground. It became contraband that people tried hard to hide from government-sponsored raids.
#4. By ending the gold standards, governments inadvertently pushed gold prices everywhere including the gold price Australia higher. The continued existence of gold in the economy is a constant reminder of how poor fiat currencies are.
#5. Despite the government consistent backing of legal tender laws, physical gold can be a reproach and menace over the power of fiat currencies.
#6. Central Banks like the US federal reserve, the Australian central bank hold are controlled by the government. This is what makes them powerful institutions.
Central banks are happy when people use their fiat currency. They start having problems when people turn to alternatives like gold.
Reserve banks have a dual mandate. They maintain stability whilst promoting high employment rates. The gold price Australia tends to rise with unemployment rates. Governments hate when that happens.
#7. When governments were under the gold standard, they could not accrue debt to fund programs. The gold standard forced everyone to return to austerity.
Simply put: governments hate gold because it limits the power and influence that central banks have which is why they feel the way they do about the yellow metal.