Stability ebbs away

The links between politics and money are many and various. One iron clad rule that seems to apply to money is that no fiat currency keeps the status of international reserve currency forever. At the moment the world's international reserve currency is the US Dollar. That 'at the moment' seems a little rhetorical - wherever you go in the world the US Dollar is not only accepted but eagerly sought. The Bretton Woods agreement of July 1944 crowned the Dollar, but it has now been largely forgotten that the agreement pegged the Dollar to the price of gold. Since the 13th century the world has seen at least eight international reserve currencies. They shared a certain feature - their value was measured in gold. One might say that throughout history gold has de facto been regarded as the measure of the value of fiat money. The world has, almost without knowing, always been on a gold 'standard'. Despite President Richard Nixon removing the formal link between the Dollar's value and gold in August 1971, gold has continued to be valued while the Dollar has lost more than 80% of its purchasing value since 1971.

Fragmentation

Politically the world has fragmented. The Cold War of the 1945-1989 era, the era of the US being recognized as the 'world's policeman' and the clear dominance of the US Dollar, was discomfiting but there was stability as well as universal fear. That stability has gone; the US can no longer act as the world's policeman; and the world's dominant fiat currency is steadily losing its preeminent position. In June this year the International Monetary Fund (IMF) published a blog which asserted that "recent data from the IMF's Currency Composition of Official Foreign Exchange Reserves (COFER) point to an ongoing gradual decline in the dollar's share" of official sector reserves.

Instability has replaced certainty. The Cold War's latent nuclear threat was perpetually terrifying but there was a certainty that the US would come to the rescue of West Europe, of democracy. That certainty has dribbled away, like mercury in sand. Democracy itself is today fragile - the Pew Research Center in the US reported in February this year the results of a survey of 24 nations, asking how citizens rated the political environment of their country in 2023: "in a word, poorly" said Pew. In the US 66% of those questioned said they were not satisfied with the way democracy was working in their country. In France, 73% said they weren't happy.

Implications for gold

The polarization which most obviously has infected American public life appears to be spreading. The recent parliamentary elections in France blitzed the uneasy centrist calm overseen by President Macron. In the UK the newly elected Labour government won a landslide, but on a much reduced turnout by voters. The Labour and Conservative Parties took their lowest share of votes in more than a century. Independent candidates, candidates from the Green Party, and from the Reform Party (which is reviled by some for its policies, not least that on immigration) all made small gains. Fragmentation.

As fragmentation marches on and the divides become more bitter there will be many losers, few winners. Gold has already shown that it's likely to emerge a winner, having gained an average across nine fiat currencies of almost 17% since the start of this year, almost 30% in Japanese Yen terms. In a fragmenting world people seek certainty, security. As the US demonstrates it no longer is able or prepared to be a world policeman, its currency will progressively lose its international reserve status. As yet there is no obvious successor - cryptocurrencies, Bitcoin in particular, are vying for the position but have too many drawbacks to be useful as a currency. Gold, on the other hand, remains not only a store of value but also, thanks to Glint, can be used as money in your everyday life.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.