Several countries have begun to trade in currencies other than the dollar as the US-led West continues to use punitive sanctions as a foreign policy tool — sanctions designed to throttle trade, strangle fund transfers through the Western controlled SWIFT payment system and freeze assets — physical and liquid assets.
This trend has gathered considerable momentum after the US-led West imposed sanctions against powerful countries like Russia and China leading to their decision to strengthen an available forum, Brazil-Russia-India-China-South Africa (BRICS), with its expanding membership (including Iran) which President Trump has openly declared a war against.
In recent months’ Western attention has riveted on China procuring gold while reducing its investments in US treasuries/bonds by about 300 billion dollars - still a drop in the ocean as China’s total holdings of US bonds are over USD 3 trillion, which have suffered a rate decline due to the tariffs announced by President Trump on Liberation Day. This has led to discussions on whether some countries intend to revert back to the gold standard, defined as fixing the price for gold in their local paper currency rather than pegging it to the dollar or the Euro.
The gold standard reduced uncertainty in trade with price imbalances between trading countries offset by a balance of payment adjustment mechanism as gold, used to pay for imports, reduced the money supply of importing nations leading to deflation and thereby making them more competitive; while importation of gold by net exporters increased money supply causing inflation and making them less competitive.
To put it from a historical perspective, the demise of the gold standard began soon after the end of World War II as the United States emerged as the largest creditor nation in the world.
It was initially replaced by what was referred to as the gold exchange standard that allowed the dollar as a reserve currency but exchangeable for gold at the rate fixed by the US – an option that was available to central banks but not to firms or individual firms. Initially, this rate was set at 35 dollars per ounce. However, some countries at the time opted to impose trade restrictions to protect their reserves and exchange rates.
French President Charles de Gaulle began reducing the dollar reserves held by the Banque de France (French central bank) and exchanging them for gold at the official rate, which led to a sustained balance of payments crisis in the US culminating in President Nixon’s decision on 15 August 1971 to end US dollar convertibility to gold and replace it with a system which allowed for periodic devaluation of the dollar against gold.
In December 1971 the US dollar was devalued to USD 38 per ounce, in October 1973 it was further devalued to USD 42.22 and as a measure of the failure of this measure the dollar was then floated.
By 1976 October, the US officially changed the definition of the US dollar and references to gold were removed from the statutes. But countries have continued to cite gold as a component of their reserves to this day, including Pakistan.
One advantage of the gold standard was that it took control of issuing paper money out of the hands of officials — officials who can be easily manipulated by economic team leaders guided less by economic and more by political considerations — as it allowed the quantity of gold held to act as a limit to further issuance of paper currency, thereby avoiding the threat of inflation.
Pakistan as a case in point bears testimony to the misuse of discretionary powers by State Bank of Pakistan, which accounts for prohibitive conditions imposed by donor agencies on monetary policy (discount rate as well as the external value of the rupee).
However, it is relevant to note that a 2012 study disabused those nostalgic about the good days of the gold standard after two-thirds of economic historians rejected the notion that the gold standard was “effective in stabilising prices and moderating business-cycle fluctuations during the nineteenth century” and instead they maintained that the gold standard deepened the 1929 depression.
Be that as it may, reserves cited by countries include not only US dollar/Euro reserves but also gold reserves. Today the largest gold reserves are held by the US (8133 tons), followed by Germany 3350 tons, Italy 2451.8 tons, France 2436 tons, Russia 2330 tons and China 2299 tons.
On 31 July, perhaps as a countermeasure to reported China’s gold purchases, the US imposed a 39 percent tariff on one kilogram and 100-ounce gold bars from Switzerland with immediate effect.
The impact was very well argued in a tweet by endgame macro: “a US Customs ruling reclassified these bars, the exact formats COMEX accepts for delivery, into a tariffed category. That’s critical because Switzerland is the world’s largest gold refining hub, and a substantial share of the physical gold that underpins COMEX futures flows from there.
Within hours of the news, premiums for New York gold futures jumped above the spot price, signalling that deliverable supply into the US market had abruptly tightened. Swiss refiners have already slowed or halted shipments, further compounding the squeeze. At its core, this is about leverage and strategic positioning.
The US is applying pressure on Switzerland while giving domestic refiners a direct pricing advantage in kilo and 100 ounce formats. That could lock in a higher New York futures premium, even if global spot prices hold steady. By effectively capping imports of these bar types, the move raises the stakes for COMEX short sellers, whose ability to source bars for delivery just got more complicated.
Alternative routes such as shipping 400 ounce bars to London for recasting in the US, or rerouting through non-Swiss refineries will take time, limiting throughput in the interim. The longer game may be less about tariffs for revenue and more about weaponizing the gold market, creating a controlled squeeze in the very bar formats that drive global futures pricing.”
Game perhaps was won by China; however, the set has been won by the US but the match is still to be played out between the two competitors focused on domination of the global economy.
Pakistan as a case in point has dollar reserves of around 14 billion though rollovers alone are USD 16 billion and gold reserves of 64.75 tons against India’s dollar reserves of over 700 billion and gold reserves of 880 tons. There is a long way to go for Pakistan to catch up and requires more than a decade of sustained growth backed by in-house out of the box policies that will reduce the country’s indebtedness in the power sector (requiring comprehensive macro-policy decisions instead of micro decisions that are continuing) and a tax structure designed to be fair, equitable and non-anomalous rather than simply focused on raising total collections.
Copyright Business Recorder, 2025
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