Gold alone is not an ideal means of payment in crisis situations
Gold is often cited as the solution for payments during crisis situations. The precious metal enjoys historical trust and has functioned as a store of value for thousands of years. Moreover, its value rises sharply during (economic) crises. Yet gold faces considerable obstacles as a practical means of payment.
During a crisis, it is difficult to use your gold because it is actually far too valuable for that purpose, according to financial experts. This warning gets to the heart of the problem: gold is simply too expensive for everyday transactions. With only gold, it becomes very difficult to buy, say, a loaf of bread or a kilo of apples.
The denomination problem: too valuable for small purchases
The greatest practical challenge lies in the unit of value of gold. The current price is more than 90 euros per gramme, which is far too high for daily purchases such as food and fuel. Buying bread with gold would mean that you lose considerable value or depend on someone who can give change in other forms.
A gold coin represented a small fortune. A ducat of 3.5 grammes, for example, represented at least two average weekly wages in the Middle Ages. This historical precedent shows that gold has always been too valuable for everyday payments.
Concrete examples from recent crisis situations
In Venezuela, where hyperinflation destroyed the bolivar, we see the denomination problem in practice. In some places in Venezuela, the prices of goods are not only quoted in the local currency bolivar or dollar, but also in grammes of gold. However, even there its use proves problematic because it is difficult to give change for small purchases.
The German hyperinflation of 1923 illustrates this problem perfectly. Whilst a loaf of bread eventually cost 201 billion marks, gold 20 mark coins became so valuable that no one wanted to spend them on daily shopping anymore. The gold 20 Mark coins were widely used in daily commercial traffic and served as a valuable means of payment for both large and small transactions – but this was before hyperinflation, when the mark was still stable.
Silver as a traditional alternative
Historically, this problem was solved by using silver for smaller payments. Silver remained the most commonly used coin metal for everyday transactions until the 19th century. After all, silver offers better denominations for daily transactions.
The common man rarely got anything other than silver or copper coins in the past. Gold coins were the means of payment of the wealthy and merchants. This historical separation between gold for capital transactions and silver for daily trade shows why gold is fundamentally unsuitable for small-scale payments.
how gold was actually used in crisis situations
The German hyperinflation (1921-1923): gold as a safe, not as a means of payment
The Weimar Republic offers a fascinating example of how gold behaves during extreme monetary instability. When the German mark collapsed and a loaf of bread eventually cost 201,000,000,000 marks, many hoped that gold would bring salvation.
In reality, the opposite happened. Gold played a crucial role as a refuge for wealth and preservation of value for those who wanted to avoid devaluation of the mark. But people hardly used it for daily transactions. Instead, they increasingly stored coins, unofficially called the gold mark from then on, at home in the proverbial sock.
The German government eventually had to introduce emergency money – local paper notes, zinc coins and even business vouchers – to keep daily payment transactions running. Gold was too expensive and too scarce to use practically.
Venezuela’s modern experiment: gold as a standard, not as currency
Venezuela’s current crisis shows how gold returns in extreme circumstances, but also what practical limits there are. Families retrieved grandmother’s gold collector’s coins from under the mattress to pay with them, but only for large purchases.
President Maduro even launched an official gold savings scheme in which Venezuelans can buy gold certificates of 1.5 and 2.5 grammes. His statement was telling: “Gold is a safe investment. Gold will always remain gold. Time will pass but gold will remain gold.” However, this system works via certificates – not via direct gold payments for daily shopping. So there isn’t really any question of physical gold ownership.
Second World War: war money instead of gold
During the Second World War, when monetary systems collapsed, it was expected that gold would resume its historical role as a means of payment. Instead, alternative systems emerged everywhere. German banknotes and coins became legal tender and the Netherlands, like Belgium again, became acquainted with zinc war money.
All other coins had to be handed in, with an exception being made for numismatic collections. This shows that even during extreme crisis situations, governments do not use gold for daily payments, but rather confiscate or hoard it.
Verification and trust: the recognition problem
A second major obstacle is verification. In a crisis situation, the receiving party must be able to establish that the gold offered is genuine. This requires specific knowledge or equipment that is not always available. Counterfeit gold products or low-quality gold alloy can be difficult to distinguish from pure gold.
This problem became painfully clear during the chaos in post-communist countries. In the early 1990s in Eastern Europe, fake gold coins circulated en masse, causing many people to lose their trust in gold as a means of payment.
Moreover, different gold products have different purities – from 14 carat to 24 carat. Calculating the actual value requires not only knowledge of the gold price, but also of the exact carat content. I can imagine how this would lead to endless discussions between buyers and sellers during stressful moments.
The Nazi gold dilemma
The Second World War illustrates another verification problem. Nazi Germany used gold plundered from minorities to finance its war efforts. Even the gold teeth were pulled from the mouths of corpses in the gas chambers. This “blood gold” circulated in the financial system for years, which shows how difficult the origin of gold is to verify.
Lack of exchange rate consensus
Fluctuating gold prices
Gold prices fluctuate daily. Without access to real-time price information, determining a fair exchange rate between gold and goods becomes guesswork. This creates opportunities for exploitation and disputes between buyers and sellers.
In Venezuela we saw this problem in concrete terms: prices were quoted in gold, but buyers and sellers often had different views on the current value. This led to conflicts and mistrust.
No standardised “exchange rate”
Unlike in the past, when gold backing by governments guaranteed a fixed rate, there is now no central authority that establishes exchange rates between gold and goods during crisis situations.
The role of trust and acceptance
Much depends, of course, on whether shopkeepers, businesses and citizens generally accept physical gold as a means of payment. Historical examples show that this acceptance problem is crucial. During the Russian sanctions after 2022, some traders accepted gold, but most still preferred hard currencies such as dollars or euros.
Why central banks hold gold but don’t spend it
An interesting fact is that countries such as Italy, Spain and even Greece did not sell a gram of gold during the European debt crisis. The only countries currently selling gold are countries that have completely run through their currency reserves and therefore have no option but to sell gold (for example Venezuela).
This behaviour demonstrates the fundamental difference between gold as a store of value and gold as a means of payment. Central banks regard gold as a nest egg, not as a circulation medium for citizens. The German example from the 1920s confirms this: when the Reichsbank was re-established, they returned to paper currency (the Rentenmark) instead of issuing gold coins.
Practical alternatives for crisis situations
Lessons from historical crisis situations
Every major monetary crisis in history shows the same pattern: gold is hoarded, not spent. German citizens in 1923, Venezuelans in 2018, and Russians in 2022 all behaved identically – they kept their gold for emergencies but used alternative means of payment for daily transactions.
Cash remains king
For that reason, it is important to have sufficient liquid assets as well as gold to get through a crisis. Think, for example, of cash, foreign currency, silver and possibly also goods that can be exchanged relatively easily.
Cash often retains its functionality, even when electronic payment systems fail. For shorter crisis situations, cash forms the most practical means of payment.
Emergency money and local systems
History teaches us that during crisis situations, creative local solutions often emerge. In the German hyperinflation, emergency coins made of zinc, local vouchers from companies and municipal money emerged. Emergency money was an alternative means of payment during the war crisis to keep payment transactions going.
These local systems worked better than gold because they:
- Had small denominations for daily purchases
- Were locally trusted and accepted
- Caused no verification problems
- Could be adapted flexibly to local needs
In Venezuela we saw modern variants of this emerge – from internet money to bartering via social media. Remarkably, these systems systematically function better than attempts to use gold.
Small-scale store of value
For those who still want to use precious metal, smaller silver or gold products are more practical:
Suitable options:
- Silver coins of 1 troy ounce (31.1 grammes)
- Small gold bars of 1 gramme
- Old silver coins (Dutch guilders, German marks)
Less suitable options:
- Large gold bars
- Jewellery (difficult to value)
- Gold coins above 1/10 troy ounce
The confiscation threat: Roosevelt’s precedent
An often underestimated risk is confiscation by governments. In 1933, President Roosevelt banned private gold ownership in the United States through the Gold Reserve Act. German citizens had to hand in their gold coins during both world wars. What if governments in crisis situations decide again to confiscate gold?
Our ministers will, of course, only make use of such laws in extreme necessity. But how will governments react if confidence in gold continues to increase at the expense of confidence in paper money? This historical precedent makes gold as crisis situation preparation riskier than is often acknowledged.
The psychological factor
Why people hoard gold instead of spending it
Why people hoard gold instead of spending it
Should there be another major monetary crisis, people will hoard their gold as much as possible and first use paper money or bartering for daily payment transactions. This behaviour is logical: in uncertain times people hold on to their most valuable possessions.
This psychological reality was confirmed in every historical crisis. Even today we see this pattern in Venezuela and Turkey – gold is seen as the last resort, not as the first means of payment. This instinctive reaction makes gold fundamentally unsuitable for regular transactions during crisis situations.
The trust paradox
Ironically, the success of gold as a store of value undermines its usefulness as a means of payment. The more people believe in the value of gold, the less inclined they are to spend it. This creates a deflationary spiral whereby gold becomes too valuable to use practically – exactly what happened in the German hyperinflation.
Associated costs
The use of gold for payments brings hidden costs with it: transport, security, verification and possible losses through theft. These factors make gold impractical for frequent transactions.
When gold can be useful
Despite all the practical limitations, gold still has value in crisis situations, but mainly as:
- Long-term store of value: For preserving purchasing power during and after crisis situations
- Large payments: For rare, high-value transactions such as property or vehicles
- International trade: For transactions between different currency areas
- Recovery period: After a crisis, for exchange into the then prevailing currency
Conclusion
Whilst gold is a proven store of value, practical obstacles make it unsuitable as a daily means of payment in crisis situations. The combination of excessively high denominations, verification problems and lack of standardised exchange rates severely limits its usefulness.
Historical examples from the German hyperinflation to the current crisis in Venezuela consistently show the same pattern: gold serves as a store of value, but alternative payment systems emerge spontaneously for daily transactions. Even in the most extreme monetary chaos, people prefer local vouchers, emergency money, bartering and hard currencies to gold for their daily needs.
For genuine self-reliance, diversification in means of payment is essential. A versatile approach with cash, small-scale precious metals and exchangeable goods offers more practical security than relying solely on gold. Those who want to use gold in crisis situations should think primarily of preserving value over a longer period, not of daily shopping.
The lesson from history is clear: gold by its nature always remains the ultimate form of money, which has given refugees and citizens of ‘failed states’ with hyperinflation a way out to survive – but then as a reserve, not as a daily means of payment.