Tracing the Rise, Fall, and Possible Return of Gold in a World Led by the Dollar

Adam Smith, in his classic The Wealth of Nations (1776), observed how metallic money was naturally chosen by markets as a store of value. He may not have foreseen the blockchain or Bitcoin, but he clearly understood the fragility of trust in a monetary system that leans too far on abstraction. As we drift further from tangible anchors, his insights echo with fresh urgency today.

We live in a world where $100 bills are printed in seconds, and trillion-dollar debts are shrugged off like mild hangovers. And yet, behind the flashing tickers and monetary easing, there’s an old ghost knocking on the vault door: gold. In recent years, central banks—including those of China, Russia, and India—have been quietly building up gold reserves, prompting whispers of a global rebalancing. Could the world be inching, however cautiously, back toward a system where value once again has weight?

Barter was brief, and clumsy. As human societies expanded, so did their need for efficient, durable stores of value. Metal stepped in. From Roman denarii to Mughal mohurs and Chinese silver sycees, currency gradually moved from representational to rational.

The British pound sterling, riding on the sails of colonial trade, emerged as the first quasi-global currency in the 19th century. It was backed by gold, and by 1821, the Gold Standard became formal policy. The world followed suit. Economist Barry Eichengreen, in Globalizing Capital, outlines how this created a web of convertibility, trade, and financial stability—until war and ambition tore it apart.

As the world emerged from two world wars, the mantle passed to the United States dollar, institutionalized as the reserve currency at the Bretton Woods Conference of 1944. The dollar was pegged to gold at $35 an ounce, and every other major currency was pegged to the dollar.

But promises, even in Washington, can become burdens. In 1971, President Richard Nixon abruptly “closed the gold window,” severing the link between the dollar and gold. What emerged was the modern fiat system—currencies floating freely, untethered from physical commodities, sustained only by confidence.

As Liaquat Ahamed reflects in Lords of Finance, this was both liberation and risk: without gold, governments had flexibility. But they also had temptation.

Since 1971, money has become almost metaphysical. Central banks issue currency at will. Exchange rates now swing on algorithms, speeches, or even tweets. Paul Volcker, in Keeping At It, chronicles how trust had to be re-earned after the inflation-ridden 1970s. But even he could not have imagined a time when negative interest rates or trillion-dollar coin proposals would enter serious economic discourse.

Still, the U.S. dollar retained its throne. Why? Because in a world full of IOUs, America’s IOU was the most believable.

But that belief, too, is showing cracks.

In the past decade, there has been a renewed appetite for gold—and not just in jewellery showrooms. According to the World Gold Council, central banks globally bought more gold in 2022 and 2023 than in any year since records began in 1950. China and Russia are at the forefront, as part of a clear de-dollarisation strategy. The BRICS bloc, which now includes oil and commodity giants, has openly discussed a new currency backed by gold or commodities.

This isn’t nostalgia. It’s calculus. As sanctions, currency weaponization, and geopolitical risk rise, countries are looking to anchor their monetary systems in something immune to political interference.

Let’s dream—or worry.

If the top five economies (U.S., China, Japan, Germany, and India) were to return to a full or partial gold standard, their current gold reserves would be laughably inadequate.

Take India, for instance. The RBI officially holds around 800 tonnes of gold. But India’s M2 money supply (broadly, the total currency in circulation plus deposits) is now around ₹250 lakh crore (roughly $3 trillion). At current gold prices (~$2,300/oz), even 10% backing would require over 4,000 tonnes. For 50% coverage, India would need around 20,000 tonnes—a number far beyond its current reserves, though technically not impossible if private household gold (estimated at 25,000 tonnes) is considered.

The U.S., with 8,100 tonnes, would need nearly 285,000 tonnes to back its $21 trillion M2 supply. In short, the world would need at least 10 times its current gold holdings to make a gold-backed currency system feasible.

Perhaps out of the fear of struggling to secure this staggering weight of gold, the countries queue behind the ‘Pied Piper’. It’s not blind faith—but calculated compromise. As long as the dollar plays its tune, others follow—less because it is fair, and more because it is convenient.

Exchange rates would become rigid and predictable—but governments would lose their monetary levers. Inflation control would become simpler, but economic stimulus during recessions? Nearly impossible. Growth may slow, but stability may rise. But would that be politically palatable? That’s debatable.

Historian Niall Ferguson, in The Ascent of Money, notes that while the gold standard provided long-term price stability, it worsened economic downturns by denying central banks the room to breathe.

Would gold cure the disease or kill the patient?

There’s a quiet rebellion brewing—not one of tanks, but of tonnes. As BRICS nations stock up on bullion and Russia settles trade in gold-linked terms, the dollar’s dominance begins to look less divine and more habitual. If the whispers grow louder, and more countries begin demanding payment in gold or non-dollar assets, the world could tip toward a multi-currency system, with gold playing the anchor role.

It won’t be a single, dramatic reset. More likely, a series of bilateral experiments, digital tokens backed by metals, and parallel clearing houses that slowly erode the dollar’s monopoly.

And if that happens, the world may return to a form of trust that you can weigh.

This humble reflection would be incomplete without saluting the minds who mapped the monetary terrain before us. Adam Smith explained money as a product of trust and efficiency, laying the foundation for all that followed. Barry Eichengreen’s Globalizing Capital remains the definitive guide to the long arc from gold to fiat, while Liaquat Ahamed, in Lords of Finance, reminded us that central bankers, despite their power, are not infallible. Niall Ferguson showed us that finance is as much the story of empires and ideologies as it is of numbers. John Maynard Keynes, with characteristic foresight, warned that placing the weight of global trade on a single national currency would prove unstable. And Paul Volcker stood tall when inflation threatened to bring fiat money to its knees. To these giants, we owe not just analysis, but the metaphors and measures that help us make sense of today’s shadows.

Ravishankar Kalyanasundaram is a second-generation writer and retired Chartered Accountant and can be contacted at geekr@hotmail.com