German Central Bank Doesn’t Rule Out Gold Revaluation
- German Central Bank Doesn’t Rule Out Gold Revaluation
by Jan Nieuwenhuijs, https://thegoldobserver.substack.com/
The more debt is being accumulated on the balance sheets of European central banks, the more likely they will revalue gold to write off this debt. When I asked the German central bank if they consider this option they replied: “at this stage, we prefer not to speculate about any potential decisions … that might or might not be taken in the future.”
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A New Global Gold Standard
Revaluing gold to write off bad debt would require central banks to set a floor price for gold. If a central bank uses its revaluation account fully, the gold price ideally doesn’t fall back or this central bank will incur unrealized losses. As such, the central bank would need to stabilize the gold price, which is a form of a gold standard.
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When it comes to revaluing gold Europe is most likely to take the initiative, as opposed to the United States, because revaluing gold will damage the dollar’s status as world reserve currency: not something the U.S. aspires. Thereby, the euro is the second most liquid currency in the world, enabling the eurozone to revalue gold—by printing euros and buy gold—without devaluing much against other currencies and commodities.
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Still, European central banks would face risks in revaluing gold as they can’t know how much gold they must buy, and thus print euros for, at what new price. Although, I think the moment they will start buying, countries outside of Europe will join purchasing gold as they too have a debt problem.
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Last but not least, Europe has been preparing a new global gold standard since the 1970s (as I have written about extensively here). Revaluing gold would be a logical step towards a new international monetary system based on gold. It might not be the classic gold standard, but perhaps a system of gold price targeting, allowing countries more easily to devalue their currency if needed. After all, currency devaluations are a fact of life.
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By revaluing gold bad debt can be written off and the new price will cause the currency in circulation to be sufficiently backed by gold. A reset offering a new international monetary system.
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