From ancient times to date, gold has been a valuable commodity. It has persistently remained as a sign of richness and artistically, to demonstrate the longevity of the related valuables which mostly include pieces of jewelry. However, here, we’ll exclusively focus on the role of gold as a hard currency across the world.
What is a hard currency?
It is essential to know what hard currency is before looking at the function of gold as the said form of money. During, the era of the gold standard, hard currency was gold. When it comes to modern times, hard currency is any currency with value that’s unlikely to depreciate rapidly or fluctuate significantly. Another definition- It is a widely-accepted currency world-wide as a form of payment which is expected to have a stable value. Besides, hard currency ought to have good international credit, solid exchange rate (especially in politically and economically strong countries) and maintain high liquidity in the Forex market.
Examples of hard currencies include the U.S. dollar, European euro, South African rand, Japanese yen, British pound, Swiss franc, Canadian dollar as well as the Australian/New Zealand dollar. Gold also comes in handy as a hard currency.
What makes a worldwide hard currency?
Having seen what a hard currency is, it’s now time to see what makes gold hard currency. To start with, gold possesses economic properties that can’t be easily lifted. It has over time become a constant which people use to measure and determine other items’ value. As a result of its constant nature, gold is the finest raw material for the fiat money.
Again, from the ancient days to the modern state of the issuance of financial currency, the life of banknotes is unpredictable for very many years, irrespective of the country. Take an example of Soviet ruble. In as much as the currency was once very strong and powerful, it would take it just one day turn into a worthless paper. The banknotes used by many countries can be easily manipulated, compromising their value.
As such, their value is unpredictable and their circulation is very random. This applies even to the largest international reserve currency-the dollar. On the other hand, gold can be produced indefinitely and its physical properties, particularly color, remain constant irrespective of how the world changes or where it (gold) is.
Unlike other currencies, gold has an intrinsic value. In case a country’s government crumbles, its currencies (notes and coins) will be rendered almost worthless as the currencies don’t have the associated value. What value would a paper with some writings bear if its value is solely pegged on its ability to purchase something?
On the other hand, gold has self-value. Even if it is not used as a form of payment, it is still valuable. It can be used to make an array of valuable items. In short, gold is “worth having” in itself. This is because nearly everyone likes it because its components are valuable but not because a person claims that it’s worth something.
Here comes another point; although some countries and regions have international currencies, the currencies can neither be used as a form of payment in some countries nor can they be exchanged for some other countries’ currencies. Taking an example of the dollar; even if the currency dominates the financial monetary system in the world, it is not universal in some countries and so can’t be expanded for the currencies used in the respective countries.
On the contrary, although some countries haven’t legalized the free trading and exchange of gold, the exchange of gold and the local currency goes on unobstructed. Even where the authority doesn’t allow the transactions, the ordinary people are still in touch with the value of gold and ready to exchange it for anything worth it, including their local currencies, among other valuables. In fact, in some countries, common people are fully unaware that international currencies like the U.S and the euro do exist. However, they are fully aware of and appreciate the value of gold.
Furthermore, due to the gold’s large-scale reserve, the swelling purchasing power of people in various countries as well as the central banks’ joint effect on the increase of the purchasing power of gold reserves, gold has become a more secure form of currency as compared to any other currency worldwide. Most ordinary people have a very strong pursuit of gold as they fully trust the valuable. In fact, the amount of private gold reserves and the overall purchasing power of the private sectors in the world are far much greater than the national gold reserves and the world’s governments’ purchasing power in most countries. As such, even if the governments don’t prefer gold as a currency, the private sector, due to its higher purchasing power and higher gold reserve, will still make gold retain its hard currency status.
Another reason that makes gold a worldwide hard currency is the fact that there are over 180 countries worldwide with currencies that are not recognized internationally. Even worse, the majority of these currencies are unrecognized in the international market and so, the respective countries must find alternative ways to transact in the market. That’s where the role of gold as a hard currency comes in handy. Instead of fiat money, these countries use gold to carry out financial transactions with other players in the market.
Besides, gold remains a vital financial tool, with people, groups, businesses and countries using it to get mortgage finance from the international financial market. As long as any of these parties owns gold, it can get gold mortgage financing from the market. This is also something that makes gold a worldwide hard currency. Additionally, the world’s central banks still treat gold reserves as components of the important currency reserves. As such, they’ve played a significant role in the endorsement of gold as a hard currency.
Gold has very liquid markets and this is evident because of the fact that even central banks gladly accept gold as collateral. A good example of the use of gold in such instances is when Iran was prevented to use U.S dollars for payment of goods and services in the international markets. Instead of using the dollars, Iran used gold as a payment for the goods and services it needed from the market.
Having put all the above points into consideration, it is crystal clear that gold is the world’s hard currency and the reasons are simple to understand. Global acceptability, intrinsic value, popularity and the liquid of gold attribute to the status.