Money was invented to represent a store of value. It’s easier to exchange cowrie shells, tobacco or gold than it is to barter, say, cows for property.
Nowadays, currency reserves are computer notations. If countries can’t use their reserves to buy stuff, what’s the point of having them?
**If Russian Currency Reserves Aren’t Really Money, the World Is in for a Shock**
**Sanctions have shown that currency reserves accumulated by central banks can be taken away. With China taking note, this may reshape geopolitics, economic management and even the international role of the U.S. dollar.**
**by Jon Sindreu, The Wall Street Journal, 3/3/2022**
**After Moscow attacked Ukraine last week, the U.S. and its allies shut off the Russian central bank’s access to most of its $630 billion of foreign reserves. Weaponizing the monetary system against a Group-of-20 country will have lasting repercussions....**
**Barring gold, these assets [foreign currency reserves] are someone else’s liability — someone who can just decide they are worth nothing. ...**
**The entire artifice of “money“ as a universal store of value risks being eroded by the banning of key exports to Russia and boycotts of the kind corporations like Apple and Nike announced this week. If currency balances were to become worthless computer entries and didn’t guarantee buying essential stuff, Moscow would be rational to stop accumulating them and stockpile physical wealth in oil barrels, rather than sell them to the West. At the very least, more of Russia’s money will likely shift into gold and Chinese assets. ...** [end quote]
China holds over $1 Trillion in U.S. Treasury assets. I’m sure they are watching to see what happens with Russia. The Chinese are probably wondering what would happen if the U.S. froze their Treasuries. If this causes China to buy fewer Treasuries, interest rates will rise.
There are several disadvantages to owning physical gold. The one advantage to holding gold is that it is real and tangible. Its value can’t be canceled by an enemy’s unilateral decision.