One reason for the persistently high demand for gold, particularly from emerging economies and China, is the drive towards de-dollarization. These nations aim to reduce their economic dependence on the US dollar, the world’s leading reserve currency. And they are no longer alone in these efforts: From 1 May 2027, every resident of Texas will be able to pay for all their purchases with gold – provided the retailer or service provider accepts it. Gold has long been recognized as legal tender in Texas and other US states such as Florida, Utah and Louisiana. Eleven further states are working on legislation to enable their residents to conduct business using gold as a currency.
The idea: paying from gold holdings via debit card
To encourage as many retailers and service providers as possible to participate, a special electronic payment system is currently being developed which will allow consumers to access the gold held in their bank accounts directly via a debit card or smartphone app and pay merchants at the prevailing dollar exchange rate. The underlying idea is to counter inflation and the associated devaluation of the US dollar. Ultra-conservative US financial writer Kevin Freeman commented on the efforts towards de-dollarization: “According to the Fed, the US dollar is supposed to fulfil three functions: a medium of exchange, a unit of account and a store of value. Unfortunately, the dollar does not fulfil the latter function.” And indeed, according to the Monthly Gold Compass, the US dollar has lost 93.8 per cent of its purchasing power against gold since the turn of the millennium.
What about transaction costs?
Admittedly, the idea of buying gold and holding it long-term, whilst also using small portions of it to cover daily expenses, is certainly appealing. But every time gold bars are purchased or sold – and especially in small-scale sales that inevitably occur when converting one’s own gold holdings into US dollars for purposes of payment of a merchant – transaction costs arise, which are particularly high for small quantities of gold. Hence, users of the new payment system can only dream of bid-ask spreads like those of Xetra-Gold, which are just as tight as in the trading of blue-chip stocks on the stock exchange.