Gold Money Reappears Amidst the Ruin of Venezuela

31 Oct

Gold Money Reappears Amidst the Ruin of Venezuela

Q:  How long does it take people to turn to gold and silver when their government’s unbacked, fiat, irredeemable paper money collapses?

A:  It takes almost no time at all.  Just look at what is going on in Venezuela right now.  The money-printing madmen have made the national currency, the bolivar, into a national joke.

Recently President Nicolás Maduro had six zeroes knocked off the old bolivar notes.  The one million bolivar note was replaced with a new one bolivar note.  Stated differently, if you had 100 million bolivars, now you would have 1 bolivar.  

The idea was that with a loaf of bread costing seven million bolivars, carrying around that much currency and all the accounting at those large numbers was a nuisance.  So the State, which had inflated the old currency into near worthlessness, would do the people a favor with the new more convenient government paper money.

There was of course more to it than that.  By this time inflation had been plaguing Venezuelans for so long – the IMF estimated that Venezuela’s inflation would run about 5,500 percent this year – no one trusts the currency.  No one wants to hold it or save with it.

So the State hopes that there are some simple, unsuspecting people asleep at the switch who will believe the new bolivar means a real and lasting currency reform.  Those people would hold and save the new “reformed” bolivar, enabling the government to defraud them all over again with a new round of money printing.

Venezuela Bolivar Hyperinflation
The previous hyperinflated Bollivars compared to a US Dollar.

But when a government’s currency begins to fail, at first a few people realize what is going on.  Others may think prices are going up, but those who have watched the State money manipulators soon realize that it is the money itself that is failing.  

Those who converted their paper money and bolivar savings to gold early in the inflation era are counted as the lucky ones.  Small amounts of gold and silver have made many wealthy among the general impoverishment of the Maduro regime.

But others learn the lessons of fake money soon.  In no time at all the informed are followed by the less informed.  They, too, switch out of the government money both for their savings and for taking in payment for goods and services.

And where do they turn?

To gold and silver, as we said at the beginning of these remarks.

Now Bloomberg News reports that in places in Venezuela, gold has reappeared in daily commerce.  Miners pay workers in bits of gold.  They in turn break off flakes of gold to pay for lodging, in bars, and even for haircuts.

One of the great ironies of this development is that people use the old, virtually worthless paper bolivars to wrap up and protect the shards, flakes, and nuggets of gold in their pockets and purses.   

An empty food market in January 2018- Caracas, Venezuela

Scraping off flakes of gold so small they can barely be measured may seem a little primitive, but it is far better than being fleeced by unbacked printing press money.  As gold commerce becomes more common, improvements appear.  Joseph Salerno is academic vice president of the Mises Institute, writes about what needs to happen next:

“For gold to become a full-blown currency that can viably compete with depreciating dollars and other foreign currencies, the raw nuggets need to be minted into convenient shapes and sizes and their weight and fineness certified by reputable firms. This means that any legal barriers to private mints must be eliminated. In addition, sales and capital gains taxes on gold must be abolished. Since it is highly unlikely that these measures will be implemented by the Maduro government, we can only cheer on the inroads made by the people’s gold flake currency.”

Fortunately, our friends and clients at Republic Monetary Exchange don’t have to resort to backward practices to deal in gold.  No need to resort to hand tools to scrape flakes off of nuggets for commerce.  We deal in the world’s most widely recognized and desirable gold and silver coins and bullion products of well-established and reliable weight and fineness, like the one-ounce American Gold and Silver Eagles coins and other forms of gold and silver that are popular with investors.  Your Republic Monetary Exchange advisor will be happy to show you a variety of highly recommended coins and bars and discuss the merits and advantages of each.

No matter which you choose, they are all better than depreciating paper money!