The Canadian Dollar, among a long list of other currencies around the world, is no longer backed by gold. No gold, silver–nada is backing the value of the Canadian Dollar. The Gold Standard for the Canadian Dollar was officially abandoned on April 10th, 1933. This is not to be confused with the US gold standard, which was officially and completely removed in 1971 by President Richard Nixon. During the period of 1933 to 1970 the Canadian Dollar was left to either float freely in foreign exchange markets or was left to be pegged to the US Dollar; since 1970, however, the Canadian Dollar’s currency value has been floating. Today, all currencies around the world are fiat currencies, and not one single currency is backed by gold or silver.
What is a Fiat Currency?
A fiat currency simply means a currency that is not truly backed by anything tangible like gold or silver. Instead its value rests on the confidence that the citizenry of that country places in its. In other words, a fiat currency is a piece of paper with a number and two signatures. The faith of the people give it its real value. Although declared by local government to be “legal tender”, this fiat bank note is what we must use under the law for a medium of payment.
Does the Bank of Canada at least have any Gold in Reserves?
The Bank of Canada has negligible gold reserves. It currently stands, at 3.4 tonnes, in 80th place in the world in terms of countries with the most gold in reserves. Even countries like Mauritius, Nepal, Macedonia, and Sir Lanka have more gold than Canada. The gold share of national foreign exchange reserves is 0.3%. In other words “zero”. The majority of Canadian reserves are in US Dollar and other foreign currencies.
3.4 tonnes is 109,312.54 troy oz of gold. At today’s gold price of $1,730/oz, Canada’s value of gold in reserves is approximately US $189,110,694.20 (189.11 Million). When we compare that with Canada’s money supply in circulation according to the Bank of Canada, we have the following;
- M1 (cash outside banks + chequing accounts) is $611.7 Billion. Here the value of gold reserves representes .03% of M1.
- M2 (M1 + Savings accounts + money markets) is $1.047 Trillion. Here the value of gold reserves representes .018% of M2.
- M3 (M2 + large time deposits, long term deposits) is $1.461 Trillion. Here the value of gold reserves representes .013% of M3.
The Canadian Dollar is not physically backed by gold; it is a fiat currency, and underlying true backing is the confidence of its people. The Canadian central bank also possesses an insignificant amount of gold in foreign exchange reserves to back up the monetary system. Talk about a no contingency plan in the event of a currency crisis.
What has happened to Canada’s gold reserves?
The original decision to offload the gold was made in the 1980’s, at the hight of the last gold bull market. This was carried out under Brian Mulroney, Prime Minister of Canada from 1984 to 1993. Gold selling by the Bank of Canada continued until the early 2000’s; today, despite its official gold reserves by the Bank of Canada, there is even rumours that this gold has been leased out to bullion banks. Eric Sprott from Sprott Asset Management Said the following in an interview with King World News;
He (Eric Sprott in his KWN interview) is talking about 6,500 tons of demand (for gold) annually, and there’s only about 4,000 tons of supply. So there is 2,500 tons being leased (from Western central banks to make up for the shortfall). So people are not left in a vacuum about what 6,500 tons, 4,000 tons, 2,500 tons means, the US government claims to only own 8,133 tons of gold. We know that the US gold holdings have not been audited since the Eisenhower Administration, which begs the question, has any of that gold been leased? But 2,500 tons, we’re now talking about a little over 3 years (using up the entire US gold hoard) of covering that 2,500 ton (annual) shortfall. So 2,500 tons is a huge number of shortfall in here. The central banks have been leasing their gold, as Sprott suggests. But what happens when the central banks realize they are not going to get their gold back? The people they leased it to are the bullion houses. The bullion houses then sold it to somebody who wanted physical gold. The bullion houses, of course, were later going to buy the gold back from another source, and return the gold to the central banks. But what happens when the time comes if there is not enough to go around to return the (gold) to the central banks?
Remember that central banks are not required to report at all on their transactions of loaned gold. Then at the end, the Bank of Canada may not even have any gold in their vault. What a joke!
What does this mean to the future of the Canadian Dollar?
Eric Sprott from Sprott Asset Management tells us that Canada’s lacking gold reserves is a problem and that Canada should own much more gold.
Gold reserves can provide a solid groundwork for a currency backing it up with an commodity with intrinsic value. In the end, the Canadian dollar is exposed to many risks ahead. Considering the current trend of Canadian politicians to artificially debase the Canadian currency alongside the US dollar in an effort to help prop up Canadian exports, the Canadian Dollar should not be considered a safe-haven for investors.
In our next article we examine the fate of the Canadian Dollar in the event of a US Dollar Collapse.
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