The Turkish government has made the decision to repatriate all
of its gold reserves that are currently housed in the US Federal Reserve System
(FRS). Overall Turkey was storing 220 tonnes, valued at $25.3 billion, in the
US, which it repossessed on April 19, 2018.
Turkey’s
President Recep Tayyip Erdogan has toughened his stance against
the US dollar (USD), declaring that international loans should be made in gold
instead of the American currency. Ankara is seeking to reduce dependence on the
US financial system. The gold’s homecoming was partly prompted by the US
threats to impose sanctions if Turkey goes through with the signed deal to
purchase Russian S-400 missile defense systems.
This is a
dramatic move reflecting an international trend. Venezuela repatriated its
gold from the US in 2012. In 2014, the Netherlands also retrieved its 122.5
tonnes of gold that were stored in US vaults. Germany brought home 300
metric tonnes of gold stashed in the United States in 2017. It took Berlin four
years to complete the transfers. Austria and Belgium have reviewed the possibility of taking
similar measures.
Few people
believe the US Treasury’s assurances that the 261 million ounces (roughly 8,100
tonnes) in official gold reserves that are stored in Fort Knox and other places
are fully audited and accounted for. The Federal Reserve has never been fully and
independently audited. The pressure for a full, independent audit of
all US gold reserves has always been resisted by the government and in
Congress. Nobody knows if the
gold is really there. What if the vaults turn out to be empty?
It’s wiser to bring your gold home while you can, rather than to just keep on wondering.
The gold bars
that the US claims to hold are of low purity and do not conform to international industry
standards. Even if the US has the amount of gold it claims to have, most of
it would not be acceptable for trading on
the international market. While other countries are pulling their gold out of
the FRS banks, Russia and China are boosting their reserves,
creating gold-backed currencies for themselves and thus moving the world away
from the dominance of the USD.
The US
dollar’s status as the global reserve currency has been
called into question. It faces some tough competition. The
tariffs introduced by the US administration as an instrument of coercion
against other countries are failing to bolster the greenback, which may soon
face headwinds. An international currency war looms as a possibility.
This makes investors look for other options.
Indeed, why should other countries rely on a US dollar that is not backed by
gold or anything but “the good faith and credit of the American worker,” when
America itself is not trusted internationally?
For instance,
the Chinese yuan is going strong. Russia,
Turkey, and Iran are considering the
prospects for making payments in their national currencies. Iran has recently
announced it is switching from the
dollar to the euro as its official reporting currency. Russia and China have a
currency swap agreement that avoids settlements in the USD.
The quest to
reduce dependence on the dollar was provoked by the ongoing use of sanctions as
a political weapon, a kind of foreign-policy tool of choice. Even America's
closest allies are threatened by these restrictive measures. The recent attack on the Nord Stream 2 gas
project is a good example. It’s only natural for other countries to be looking
for ways to resist the US policy of twisting arms.
Using alternative currencies and bringing gold home are ways to do that.
America has
always opposed such efforts. Any methods would do. Muammar Gaddafi, the Libyan
leader, was toppled and killed after he came up with the idea to introduce a
golden dinar to be used as an international currency in the Middle East and
Africa. Iran has recently banned the use of
the USD in trade. It refuses to sell its oil for the US currency. President
Trump is likely to kill the Iran deal in May, provoking Tehran into reviving
its nuclear program.
An armed
conflict with Iran might be much closer than
generally believed. The nuclear deal has been honored, to everyone’s
satisfaction but to Washington’s chagrin. Iran undoubtedly has no military
capability that would be a threat to the US. It has never been responsible for
any terrorist acts committed abroad or things like that. But it has done
something unforgivable in the eyes of the US. It has threatened the USD. That’s
what Washington cannot accept, because if it does not support the dollar, there
will be problems financing the US government’s huge federal debt. A war with Iran
would eliminate the largest non-USD oil exporter. One thing leads to another.
The gold repatriations are a precursor to a currency war and armed conflict.
That’s what drives US foreign policy.
