Will Gold-Backed Currencies Be Revived?

It's every goldbug's favorite pipe dream: a return to some kind of gold standard that backs our money.

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Nothing remotely like a gold standard has been used anywhere in the world in almost 50 years. A true gold specie standard—the use of gold coins as money—hasn't been in effect in nearly twice as long.

That's why the idea of regarded as far-fetched. That could be changing, however, as we enter unprecedented economic times.

Challenging King Dollar

Despite how gold-backed currency is nearly universally dismissed as an outmoded policy (and a "barbarous relic"), we're surprisingly beginning to hear this concept floated more and more frequently these days.

Moreover, the chatter isn't only coming from the fringes.

A few years ago, Russian government officials would occasionally muse about backing the ruble with gold.

China made similar overtures about the potential of a gold-backed yuan during its push to have the currency included in the basket used by the IMF for its Special Drawing Rights (SDR), a theoretically neutral reserve "currency" and international unit of account.

Yet SDRs have been around for decades and are in no way a serious challenge to the dollar's status as global reserve currency.

Russia and China have each backed up their rhetoric about de-dollarization with action, however. Both of their respective central banks have been aggressively growing their gold reserves for years.

Malaysia Proposes Regional Currency Bloc

There has been some speculation, perhaps premature, that these roughly aligned interests for the Chinese and Russian governments could lead to deep economic ties between the two powers.

China and Russia are ultimately far less cooperative with one another than many Westerners imagine, despite their geographic proximity. This was true even during the Soviet era, when both countries were under a form of communist rule.

The two nations nonetheless share an interest in challenging U.S. economic hegemony. One key strategy in this "currency cold war" is the aforementioned de-dollarization efforts.

Not only have their central banks been reducing their exposure to U.S. Treasurys, but their impressive accumulation of gold is now being paired with plans to conduct regional trade in native currencies (like the ruble or renminbi), not in dollars.

Due to the burden of U.S. sanctions (and threat of military action) against Iran, the Islamic republic could also play an important role in this unfolding geopolitical drama. Iran would likely welcome any system of trade or financing that circumvents the dollar.

The most recent—and most astounding—sign that this idea of some country or countries using a gold-backed currency shouldn't be dismissed came at Tokyo's Nikkei Future of Asia conference this week.

Malaysia's prime minister, Mahathir Mohamad, suggested the best way for the various countries of East Asia to forge closer economic relationships would be to use a gold-backed currency to settle international trade.

The odds of such a concept again becoming a reality are still rather long. Other nations may increasingly resist or challenge the supremacy of the U.S. dollar in global finance, but such posturing is hardly a death knell for the USD.

Still, the notion of gold-backed currency must be taken a bit more seriously when world leaders are openly entertaining the idea. It's undoubtedly a signal that the dominant features of the global financial system in the coming years are likely to be uncertainty and distrust.

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.