The general economic direction of major developed countries has everyone in search for alternatives to fiat currency.
August 26, 2024
By: Bobby Casey, Managing Director GWP
- “Inflation is very much a political process.”
- “Left to their own devices, governments cannot help but be tempted by inflation.”
- “Governments can and will resort to inflation.”
- “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”
Of course, the debasing of currency undermines the institutional credibility of central banks. Politicians are trying to blame businesses for “price gouging”, but their net profit margins tell a very different story.
But we already know that’s not what this is, as the net profit margins have not risen. At some point, there’s no one left to blame.
What does all this inflation lead to?
It used to be, people put their money in assets like gold or real estate: anything that would never be valued at zero. Tangible, nonperishable assets in limited supply, but offered utility were the most desirable. This is why you hear commercials about gold referring to it as a “hedge against the dollar”.
But enter the “Unrealized” Capital Gains tax. Storing your wealth in an asset would mean, as that asset grows in value, you would pay 25% on that growth. You’d think that we could, under the same principle, write off the deprecation of the currency we hold as well as a loss. No.
We wrote about it here: “The Reality of Unrealized Finances“:
Aside from the IRS assuming the great task of keeping an inventory of all our assets, they would be responsible for appraising it each year.
That means, a registry for everything.
This also means a near free license to keep inflating the currency because that would lead to more taxable “wealth”. If printing more money makes the money worth less, then it will take more money to buy the assets you have. That difference will become taxable. They would literally be taxing you on the deprecation of the currency.
It makes complete sense, then, that people would search for alternatives to fiat currency.
Countries are even turning to alternatives to fiat currency
El Salvador and Argentina have turned toward a more free market approach to their economic policies, and the world watches while they try to right their courses. But they are looking to correct their fiscal policies in particular. El Salvador doesn’t have its own state currency. It uses USD and recently added Bitcoin to their roster of accepted currencies.
In Venezuela, people are trading in USD, Brazilian reals, and Colombian pesos because their bolivar is worthless.
The one currency that everyone around the world recognizes is gold. And that is precisely what every country is looking to stockpile as they search for alternatives to fiat currency.
Aside from being a globally recognized store of wealth, it is also a stateless currency. There’s no central bank cranking it out and leveraging it against others. It just exists.
There is a lot of talk about “de-dollarization”, and that the yuan is the alternative to the USD among those nations that have difficulty working with the US on its terms. But all that does is give the power they gave the US to China. And what’s to prevent China from doing the same manipulative things down the line? Nothing.
That is why gold withstands the test of time. There is a very strong possibility that gold and the gold standard makes a triumphant return! Central banks are pursuing gold at record levels in 2024:
Central banks globally added a net 483 tons of gold through the first six months of this year, 5 percent above the record of 460 tons in H1 2023.
Last year, central bank gold buying fell a mere 45 tons short of 2022’s multi-decade record
Last year, central banks’ net gold purchases totaled 1,037 tons. It was the second straight year central banks added more than 1,000 tons to their total reserves.
Central bank gold buying in 2023 built on the prior record year. Total central bank gold buying in 2022 came in at 1,136 tons. It was the highest level of net purchases on record dating back to 1950, including since the suspension of dollar convertibility into gold in 1971.
We’ve tracked China’s build up of gold stores. But it’s not just China building up their gold reserves:
China added nearly 30 tons of gold to its reserves through the first half of 2024.
Turkey was the biggest buyer through the first half of the year, adding 45 tons to its gold hoard. The bulk of its buying was in Q1, with the pace slowing to 15 tons in the second quarter.
India ranks as the second-biggest gold buyer through the first half of the year. The Reserve Bank of India has added gold to its reserves every month this year totaling 37 tons.
India didn’t just buy gold, it repatriated approximately 100 tonnes of gold from its vaults in the UK.
What can people do to keep their wealth?
There’s good news and bad news. There’s no absolutely free market anywhere, but there are freer markets than others. You need to get your wealth as far away from those who wish to take it as possible. That requires some structuring and it might even require a change in scenery for you and your family.
If you are on the global search for alternatives to fiat currency, the good news is, there are options. Whether they are worthwhile, is up to you.
There’s a reason why expatriation is on the rise in developed countries. It’s not just a traveler’s itch. People are disassociating from regimes fixated on confiscating hard-won wealth.
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