Gabriel Ruiz began the conference by observing a minute of silence in memory of the victims of Covid-19 and recalled the damage that the pandemic has inflicted on the international economy. Proof of this has been the recent announcements of the closure of the Nissan factory in Barcelona and other factories in our territory, which will cause the loss of thousands of jobs.
“Many of our clients approach gold because they are interested in what is considered the quintessential safe haven value, which has been with us for over 6,000 years. It is the money par excellence, since it maintains its value regardless of the time or the political situation. It has always represented a value” , affirmed Ruiz.
The Monetary Base
The conference has served to illustrate the way in which central banks create money: before printing the banknotes, it is necessary for the bank to have some assets that support it: it is the so-called monetary base .
Those assets have to be something of value, like the gold itself or currencies.
“The Basel III Accords considered gold as a type 1 (AAA) investment asset. That is the reason why central banks have launched to acquire gold for their reserves, with which to support the issuance of money” , explained Gabriel Ruiz.
Once the bank has this monetary base, it can issue the so-called fiat money, based on trust.
“A 50-euro bill, for example , ” Ruiz explained , “is nothing more than the invoice for a debt that the State agrees to pay, and that citizens use to purchase goods and services . “
For this reason, it costs us more and more monetary units to acquire the same goods and services, which are rising in price due to inflation.
Fractional Reserve
Another problem presented by the issuance of fiat money is given by the so-called fractional reserve : the banking system “creates money” out of thin air, which it grants in loans to its clients, backing it with only a small part, which is the money that other clients have deposited into their accounts.
According to Ruiz, “ for every real 100,000 euros, the banking system creates up to 5,000,000 euros, which do not really exist . Therefore, in the same proportion that money is created, money is destroyed, especially when credits are defaulted, which generates continuous cycles of economic expansion and contraction .
It has included a fragment of the film “El concursante”, from 2007 , in which the fictitious way of creating wealth by banks is explained, which ends up dispossessing citizens of their money.
The Gold Standard
In his conference, Gabriel Ruiz has also alluded to the gold standard , a system that was launched in 1819 with the approval by the British Parliament of the ‘Resumption Act’ , which legalized the exchange of paper money for gold, to a fixed price.
This system was adopted by numerous countries and remained in force until its annulment in 1971 by President Richard Nixon, who considered it an obstacle to issuing the paper money he needed to finance the Vietnam War.
To better observe the operation of gold, against fiat currencies, Gabriel Ruiz has shown a revealing graph, which shows the loss of purchasing power of the dollar with respect to the dollar in the last three centuries.
