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On September 18th, the London office of Deutsche Bank — one of the most respected banks in the world, and a bellwether of elite opinion — published a Global Markets Research paper entitled Gold: Adjusting for Zero. It was written by two esteemed, mainstream analysts Daniel Brebner and Xiao Fu:Figure 7: USD devaluation vs. gold (rebased) log scale:
[G]old is not really a commodity at all. While it is included in the commodities basket it is in fact a medium of exchange and one that is officially recognized (if not publicly used as such). We see gold as an officially recognized form of money for one primary reason: it is widely held by most of the world’’s larger central banks as a component of reserves. We would go further however, and argue that gold could be characterized as ‘‘good’’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies.
The conclusion from our overview of gold functionality is that the key difference between good and bad money is scarcity (imposed supply discipline could be another way of describing this). Fiat currencies can be scarce but this scarcity may change on a whim which may both impact its tenure as currency and/or relegate it to being characterized as bad money. Gold is truly scarce, having a concentration of around 3 parts per billion in the Earth’s
In 2011 Deutsche Bank enjoyed revenues of €33.2 bn. In 2009 Deutsche Bank was the largest foreign exchange dealer in the world, with a market share of 21%. We have come a long way from the view of gold as an artifact of the “bleak” and “dystopian” (as characterized by the Wall Street Journal).