Cash down, gold up!

Ken Rogoff on the value of

gold in a cashless society!

The monthly edition, Gold Investor, published by World Gold Council (WGC) for the month of February 2019 focusses the value of gold in a cashless society by Ken Rogoff. He is one of the most widely respected economists of modern times, known for his trenchant views on the benefits of a cashless society.

Here, he dismisses cryptocurrencies but suggests that gold’s role is likely to increase as paper money is phased out (The curse of cash and the allure of gold). He suggests that excessive reliance on paper money is responsible for ills ranging from tax evasion to terrorism. He also believes that monetary policy would be more effective in a largely cashless society.

Cryptocurrencies are not an effective replacement for paper money, he says, but gold’s role is likely to increase as cash fades from view.

 In the meantime, Rogoff believes that central banks should do more to find out how the cash they print is used. “I don’t advocate getting rid of paper currency quickly but I do think it’s time to think about our approach to regulation of anonymous transactions. There is an incredible disconnect between the fact that cash is already disappearing in legal, tax-compliant transactions but exploding in terms of how much central banks are printing.

At the very least, central banks should devote serious resource to studying where the cash is going and who’s using it. When that’s done, it will become very obvious that most countries are losing more by printing mountains of cash than they are gaining,” he says.

He connects currency history, use of paper & significance of gold in a wealth & asset market! “If you look at the history of currency, gold has a unique role and I don’t think it’s accidental. Some people say that if gold hadn’t been selected as a currency thousands of years ago, it would not have a role today. I don’t agree.

Gold has a lot of useful properties and unique features so I don’t think its status is in any way accidental. It’s a monetary asset and I think if you replayed history another way, you would come out with gold again,” he says.

As we have less and less paper currency, there will still be a need to store wealth, to have privacy and to carry out transactions between parties who don’t trust one another – gold fills that role. It’s probably the best substitute for paper currency so it’s hard to imagine its transaction value won’t go up over time. And there are all kinds of uses for gold in new technology that nobody even thought of years ago.

“So overall, it’s hard to see gold’s role diminishing,” he adds. In addition to gold being a store of wealth, Rogoff takes the view that it is a valuable long-term investment too – both as a diversification- and risk-mitigation tool.