Gold And US Dollar Hegemony

Gold, Ingots, Treasure, Bullion, Gold Bars, Wealth

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The US dollar is the world's reserve currency. That isn't likely to change anytime soon.

All currencies are substitutes for real money, i.e. gold.  And because all governments inflate and destroy their own currencies, any potential alternatives to the US dollar are as bad or worse.

That doesn't stop the dollar bashing, of course. In a general long-term sense, the condemnation is well-deserved. After all, the US dollar, under the care and watchkeeping of the Federal Reserve Bank of the United States, has lost more than ninety-eight percent of its purchasing power. 

The possibility of gold reasserting itself as the international medium of exchange continues to increase; but, a lot more bad stuff has to happen before we get to that point. Also, governments around the world have too much at stake to capitulate when it comes to ceasing to issue 'funny money'.

For the time being, let's focus on things as they are.

PRICE OF GOLD IN EUROS AND FRANCS

Gold is priced in US dollars and trades in gold are settled in US dollars because of the hegemony of the dollar and its role as the world's reserve currency.  But what does that mean to others around the world?  For example, what about those who live and work in Germany (euro), Japan (yen), China (yuan) or Switzerland (franc)?

When someone in Switzerland, for example, exchanges Swiss Francs for gold, they are quoted a price in Swiss Francs. That seems pretty straight-forward. But how is the price for gold in Swiss Francs calculated when the international market for gold is priced in US dollars?

The amount that someone pays in Swiss Francs (or any other non-USD currency) is determined by calculating the exchange rate between the US dollar and the specific non-USD currency involved.  Based on that calculation, it is then known how many Swiss Francs are needed to equal the transaction amount in US dollars.

What is particularly important here isn't necessarily obvious. However, it is a critical factor when assessing a transaction of this nature, and here is why...

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Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and more

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