Tags: Rickards | Gold | Global | Finance

Rickards: A ‘Hidden Role’ for Gold in Global Finance

Tuesday, 01 May 2012 07:23 AM

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As Europe teeters on the brink of a fresh round of recessions — which Spain and the United Kingdom already have entered — few appreciate the role hard assets such as gold have played behind the scenes, says James Rickards, a New York hedge fund manager and author of “Currency Wars: The Making of the Next Global Crisis.”

The cynic’s version of the Golden Rule goes like this: “He who has the gold, makes rule rules.”

But, as Rickards explains in a recent column for U.S. News & World Report, for the folks at the International Monetary Fund (IMF) that’s exactly how it seems to work.

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown

Take Brazil and Belgium. The big South American economy is among a growing chorus of emerging nations, including behemoth China, whose leaders openly wonder why Brussels has such sway at the fund.

Brazil is five times the size of Belgium, economically speaking, as Rickards explains. History and tradition might seem to be reasonable excuses, but there’s more to it, he says.

In short, gold matters: The major monetary systems might scoff at the idea of gold as a currency, yet they hold large amounts of it just in case, which Rickards argues is telling. Tiny Belgium, for instance, holds 225 tons, vs. just 33 tons in Brazil.

In fact, large economies sit on massive amounts of this supposedly “unimportant” metal asset. The IMF itself is the third-largest hoarder of the metal in the world, behind the United States and Germany. The eurozone countries hold more than 10,000 tons combined, Rickards points out.

“This is more than the United States and more than Brazil, India, China, and Russia combined,” Rickards explains. “Paper currencies issued by Brazil and China that are backed by scant gold reserves are just paper. But currencies such as the dollar and the euro that are potentially backed by huge gold reserves are something more.”

Even the IMF has a currency that can be backed by gold, called Special Drawing Rights. This non-country currency has been suggested (by none other than U.S. Treasury Secretary Tim Geithner) as an alternative to the U.S. dollar — should a second reserve currency suddenly become necessary.

“Despite decades of disparagement by mainstream economists gold is still the hidden hand of international finance. This is something that no finance minister or central banker will admit publicly because the implications for the leveraged paper money world are daunting,” Rickards continues.

“Yet actions and facts speak more loudly than words. Gold still determines who runs the system and who does not. China and Brazil will get their IMF votes — once they get their gold.”

Editor's Note: This Wasn’t an Accident — Experts Testify on Financial Meltdown



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