According to Flood, the existence of gold in the economy is a constant reminder of the poor quality of government-issued paper money and threatens to replace it.
Even as the government supports fiat currency with its prestige and its laws on legal means of payment, gold coins in the hands of citizens will continue to be a threat to government control over the country’s currency.
Central banks are the government instrument to create and control fiat currency
The power to create and control fiat currencies emanates from governments, which delegate it to central banks. As long as citizens make use of fiat money, the central bank will be satisfied. The problem comes when they find an alternative to official money, and the main one of these alternatives is gold.
Gold is related to the increase in unemployment
The precious metal is directly related to the increase in unemployment, which is usually recorded at times of crisis and economic uncertainty.
Since the Federal Reserve , which is the US central bank, has the double mission of maintaining price stability and promoting maximum employment, it is normal to be wary of gold, whose price rises when unemployment increases. And the same is true of other central banks.
The gold standard forces the government to adopt austerity policies
When the gold standard was in effect, the US government was severely constrained in terms of its ability to increase the budget deficit.
In other words, gold required austerity policies, since currency could not be issued without the consequent metal backing. Instead, once the gold standard was abandoned, the government gained the ability to finance national spending simply by borrowing money from the Federal Reserve.
The recent multi-billion dollar bond purchase program launched by the Biden administration to boost the US economy after the pandemic has not needed gold; the Fed simply has the ability to expand its balance sheet without restrictions.
In conclusion, gold limits the power and influence of central banks, so it is not surprising that they distrust it. For the same reason, citizens should turn to it to gain financial independence.
