Venezuela Part of World's Drift Toward Gold Standard

Hugo Chavez’s announcement that he will nationalize his country’s gold industry may come across as another in the long list of power grabs by the Venezuelan leader. But looked at from a larger vantage point, he is following the rest of the world’s drift toward a de facto international gold standard.

Venezuela’s gold mining was already officially nationalized in 1965, and the new measure means the government will enforce the law more stringently. The reason? Venezuela’s central bank already has 63 percent of its reserves in gold, now it wants to add more. It will repatriate the portion of that gold currently held abroad and use its control over the mines to augment its gold holdings. Central bank president Nelson Merentes simply said that this measure reflects “prudence.” Chavez put it more bluntly: “Let's convert [gold] into our international reserves because gold is increasing in its value.”

Gold is increasing in value because the largest paper money printers in the world like the United States and the European Union are debasing their currencies. It has sustained a steady march upward for a decade at more than 20 percent per year on average in U.S. dollar terms.

Foreign central banks like Venezuela’s that hold dollars and other reserve currencies are realizing that these depreciate over time, having no collateral behind them, and the best expression of money that holds its value is gold. China, South Korea and Russia are some of the big emerging market economies to recently start supplanting foreign reserves with gold, but Chavez’s regime shows that even the socialists are not immune to this free-market trend.

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