Lately we’ve discussed the possibility or maybe we should say the inevitability of a change in the global monetary system. Perhaps in the form of a currency reset.
Here’s more on how that might play out.
Recently we received an email of an interview with Jim Rickards in the Daily Reckoning. This was one of the questions he was asked:
DR: Australia’s first gold rush was in New South Wales in 1851. Today Australia accounts for around two-thirds of gold mine reserves. Yet the Reserve Bank of Australia has a relatively tiny inventory of gold. Should the RBA be stockpiling more aggressively?
We’ll publish his answer below and then after that we’ll take a look at the same question from a New Zealand perspective. Including New Zealand’s gold mining production, in ground gold reserves and official gold reserves. Plus how these might impact New Zealand in a currency reset. So be sure to read all the way to the end.
Jim: When it comes to gold, gold in the ground and gold mining, there’s no question that Australia is a super power.
In terms of its gold reserves, they are large. In terms of its gold mining output, it’s one of the 10 largest producers in the world and has been for a long time. So Australia is a gold super power in that respect.
But that’s very different from official gold or government reserves…
When it comes to government reserves the RBA is actually pathetically small, relative to the size of the Australian economy.
Now, because Australia’s economy is significantly smaller than, say, China or the United States, of course it doesn’t need as much gold.
But if you just do a ratio of gold to GDP — because that gives you an ‘apples to apples’ comparison across the board — Australia has very little gold relative to the size of its economy, which is a significant size.
So you have this disparity between private gold, gold mining on one hand…and official gold on the other. Official gold is what counts if there is a collapse in the international monetary system, which I do expect.
And by the way, that’s not an extreme statement. The international monetary system actually has collapsed three times in the past 100 years, and it does seem to happen every 30 to 40 years. It’s been over 40 years since the last one in the mid-1970s.
That doesn’t mean there’s going to be a collapse tomorrow, but it does mean that no one should be surprised if there is. That seems to be the shelf life approximately of the international monetary system.
And when the collapse comes you have to reform the system. Now I’m not saying it’ll be the end of the world and that we’re all going to be living in chaos, eating canned goods.
But the major powers in the world will sit down around the table as they did at Bretton Woods in 1944, and at the Plaza Hotel in 1985, and at the Genoa Conference in Italy in 1922.
They’ll sit down and they’ll reform the international monetary system.
The question is, how big is your seat at the table? How much voice do you have?
The more gold you have, the bigger the voice you’re going to have.
And just because there’s a lot of gold in the ground in Australia, that doesn’t mean it’s easy to dig up. It’s actually very costly. Australians know more about mining operations than most people around the world because it’s such a large part of the economy.
So it’s good that the gold’s there, but it’s not cheap or easy or quick to get it out of the ground.
The RBA should be increasing its gold reserves. Otherwise they’re not going to have a very big seat at the table when it does come the time to reform the system.
Rickard’s makes the point that Australia has significant in ground gold reserves and also mining of gold. But very little central bank or government gold reserves in comparison to Australia’s GDP.
New Zealand has a much smaller GDP than Australia – 185 billion USD vs 1.205 trillion USD (2016). So the New Zealand GDP is only 15% of Australia.
Total gold production in New Zealand in 2016 was just under 10,000 kgs according to New Zealand Petroleum and Minerals.
According to The Australasian Institute of Mining and Metallurgy, New Zealand contributed 2.5 per cent of the total gold produced in both countries in 2016. So not an insignificant amount.
It’s not so easy to find details of what the total New Zealand in ground reserves might be.
But taking the Proven and Probably Reserves from the 2 major gold mines in New Zealand – Macraes and Waihi – both owned by OceanaGold we get:
1.6 million ozs or 50,000 kgs of gold.
There is likely much more than that too. As proven and probably reserves are only one particular measure of mineable gold.
So there is still plenty of gold in “them thar hills”!
But as Rickards points out it’s not gold mining and in ground gold reserves that counts when a currency rest occurs…
We’ve looked at this topic before:
While Australia may not have anywhere near enough gold according to Rickards, they do at least have some!
Just to match Australia’s “pathetically small” (as Rickards puts it) gold reserves on a GDP basis, New Zealand would need to have 12 tonnes of gold.
But the RBNZ would need to really spend some cash in order to get New Zealand to similar gold reserves as some countries with similar sized GDP’s.
Countries with similar GDP to New Zealand and their gold reserves:
|GDP ($Billions)||Gold (Tonnes)|
Source: http://statisticstimes.com/economy/countries-by-projected-gdp.php and https://tradingeconomics.com
Even war torn Iraq and debt ravaged Greece have around 100 tonnes in gold reserves!
This saying has proved correct in the past currency resets like Bretton Woods in 1944, the Plaza Accord in 1985, and at the Genoa Conference in Italy in 1922.
While central planners have done their best to disparage gold, for some “strange” reason it’s still held as a major reserve asset by all major economies.
Given New Zealand holds no gold reserves at all anymore, in a currency reset we will have no say at all. New Zealand will simply have to go along with whatever is decided.
Furthermore it’s likely that the New Zealand Dollar would take a decent hit and be significantly depreciated in a currency reset due to this lack of gold reserves.
See here for how the RBNZ has likely already taken a hit to its foreign currency reserves:
Start a petition requesting the government require the Reserve Bank to hold a certain percentage of its foreign currency reserves in gold?
No. We’d say that is likely a complete waste of your time and energy. Why?
Because back in 2012 a reader forwarded us an email from the RBNZ that said:
Thank you for your question and apologies for the delay in responding.
The Reserve Bank of New Zealand has not held any gold reserves since 1991.
Our reserves management responsibilities are set out in the Reserve Bank Act of 1989 and our foreign reserve targets are specified by the Minister of Finance. The Reserve Bank is not, at this stage, planning to include gold in our foreign reserve portfolio. The Reserve Bank’s position is that gold does not meet our liquidity requirements.
Knowledge Adviser | Reserve Bank of New Zealand
2 The Terrace, Wellington 6011 | P O Box 2498, Wellington 6140
T. +64 4 472 2029 | F. +64 4 471 3722
Interesting that gold does not meet the RBNZ’s “liquidity requirements”. But it can be sold at a moments notice and turned into cash. So the odds of a turn around from the Reserve Bank on buying gold looks slim indeed.
We don’t know what the future will hold. We don’t know what the monetary system will look like, but odds are that in the next decade it will have undergone some serious change. A currency reset looks inevitable. Just the timing of it remains the unanswered question.
There are a lot of technological changes going on currently but the only currency that has stood the test of time for Millenia, will likely still be around and of value (and likely more valuable than today) in 10 years.
So it seems like a good idea to have your own gold reserves.
Maybe also consider some silver as well as gold. See:
What Use Will Silver Coins be in New Zealand in a Currency Collapse?>>