The need for a secure base currency: Printed money or gold?
Pandemic or for a similar definition, outbreak means a lot for the world economy anymore. At least everybody agrees on nothing is going to remain unchanged. Consumption habits, trade, government expenditures, savings, reserves and of course base currency. Especially the dominance of the dollar is going to change inevitably. Will it be diminishing in a short while? It seems so.
In normal circumstances, a central bank pursue to swap local currency for having US $. So they can pay debts, realize expenditures, or print money to monetize. Nowadays, economies are trying to experience the use of swap lines by depositing their own currencies each other. So what makes them to try that way? Swapping their local currency with a non-base currency.
With the curfew that is placed after COVID-19 outbreak, most of the countries urgently ask for the dollar through swap lines which FED didn’t respond sufficiently or equally. So, after having experiencing FED policies like that and the embargos placed by the US, countries have been thinking they should establish alternative swap lines. The suffering central banks which has less amount of dollar or gold, have started to establish swap lines through their own currencies other than dollar.
Generally, the limit for the swap lines is the amount of goods and services traded each other. Qatar and Turkey.. Russia and China.. Those are amongst the successful cases for the situation. But here an important criteria comes in.. The value of the swapped currency. In order to keep value stable, the central banks should print money in accordance with their gold reserves. which is less eligible to get manipulated or to manipulate comparing US $..
To create gold is not as easy as printing money. The only two ways to increase the amount of gold are; mining and trade.. So that makes gold safer “base currency” comparing the printed money. Besides, there are increasing risks on US $ arise. The trade policies US follows, high tariffs, trade wars between the biggest importer and the biggest exporter of the world (US and China) and relatively low yield on dollar bonds.
Economies are still highly dependant on US $.. but it is obvious to see that the rules of the game are tend to change. Gold’s domaince is on the way..