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Governments despise gold because it cannot be printed and is impossible to control. During the never-ending attempts to tax and then redistribute money, gold is of little service to them.
India is a recent example of a government attempting to regulate gold imports by increasing import taxes and establishing laws such as requiring importers to re-export 20% of imports as gold jewellery.
These kinds of prohibitions are impossible to police, and gold smuggling into India has surged. It is extremely difficult to tax gold once it has been transformed into jewellery or tangible metals.
Some central banks do possess gold, which appears to contradict this idea, but central banks own gold for the same reason you and I do – it is not the burden of another government.
Following are the reasons why governments do not like gold:
A) According to legal tender legislation, all taxes must be paid in fiat money rather than gold or silver (held in physical form). To pay obligations and taxes, only government-sponsored fiat currencies are permitted. Governments enact these legal tender laws because, from 1921 to 1971, western governments determined that, in reaction to politicians increasing government expenditure, they favour meddling and redistribution than allowing business and inventiveness to enlarge the pie for everyone. Rather than a constantly expanding pizza diameter, pursuing exactly equal pizza slices became the ideal aim. However, if you don’t control the pizza cutter, you won’t be able to manage the size of the pizza slices. Because wealth is a pizza slice and taxes is a pizza cutter, the government must ensure that only fiat money is recognised as wealth because fiat is simpler to identify and tax than solid metals.
B) Industries that are heavily controlled by the government cannot be bailed out if the currency is not fiat. And if it is tethered to a gold standard or some other restricting factor.
When we observe that the government helps to define the rules for industries and impacts them through regulation, it is evident that the government is responsible when a regulated industry fails.
During the 1930s, banks all over the world collapsed because the government responded to illiquidity concerns with incorrect policies. To be sure, speculative trading and double counting of checks all contributed to the 1930s financial crisis.
However, because the US government, like many nations, was on a gold standard, they couldn’t create additional US currency without more gold. The US government took all gold owned by citizens and prohibited citizens from possessing gold in order to enhance its gold reserves.
The United Kingdom imposed regulations that banned residents to having no more than four gold or silver pieces and prohibited private persons from importing gold. The US government paid far less than market pricing for the stolen gold before raising the price to a higher official rate.
This enabled the government to create additional money to bail out the banks. Gold was ‘legally’ prohibited for private possession in the United States until the 1970s, but the underground market thrived, and since gold is a tangible object, it was readily hidden from government raids.
C) Since governments abandoned the gold standard, gold has increased in value against all currencies.
D) The presence of gold in the economy serves as a continual reminder of the poor quality of government paper, and it always poses the threat of replacing the paper as the country’s money.
Even if the government backs its fiat currency with all of its prestige and legal tender legislation, gold coins in the hands of the public will always be a constant reproach and threat to the government’s grip over the country’s money.
E) Central banks (for example, the Federal Reserve) are mostly privately held yet controlled by the government of the country. The government gives a central bank the authority to produce and manage fiat money.
The central bank is content as long as individuals spend their money. The issue arises when individuals discover an alternative to fiat cash. Gold is the most popular option. This is why central banks despise gold. The central bank loses influence if individuals utilise gold instead of fiat cash.
F) The Federal Reserve Bank has a dual mandate. It must ensure price stability while fostering maximum employment.
The Fed despises increasing gold prices because they coincide with rising unemployment rates.
G) Gold haters are nothing new. The US government’s capacity to pursue deficit spending was constrained when it was on the gold standard. It could only go so far in debt.
The gold standard compelled people to adopt austerity. When the government abandoned the gold standard, it gained the ability to fund any national cost simply by borrowing from the Federal Reserve.
Today, the Fed does not require any quantity of gold to acquire government bonds. It has the opportunity to extend its balance sheet with no restrictions.
Simply, gold restricts central bankers’ authority and influence. It’s no surprise they despise it.