Do you consider gold to be money? That was the question Representative Ron Paul, R-Texas, asked Federal Reserve Chairman Ben Bernanke, who replied after a long pause, "no."
Paul, a GOP presidential hopeful and known for his Libertarian views, has championed returning the U.S. to a gold standard, where the dollar's value is pegged to gold, which makes it hard for the government to print excess money and live beyond its means.
During testimony before House Financial Services Committee, Bernanke, who has spearheaded massive injections of money supply into the economy, told Paul he doesn't believe the precious metal is viewed as a currency.
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"The price of gold today is $1,580 the dollar during these last few years the dollar was devalued almost 50 percent. When you wake up in the morning, do you care about the price of gold? When you wake up in the morning, do you care about the price of gold?" Paul asked Bernanke in his testimony covered by media worldwide.
"Well, I pay attention to the price of gold but I think it reflects a lot of things. It reflects global uncertainties. The reason people hold gold is its protection against what we call tail risk ... they have gold as a protection," Bernanke responded.
"Do you think gold is money?" Paul responded.
|Fed Chair Ben Bernanke
(Getty Images photo)
"No," Bernanke said after a long pause, adding "it's an asset. Would you say Treasury bills are money? I don't think they're money either."
"Why do Central Banks hold it?"
"It's a form of reserves."
"Why don't they hold diamonds?"
"It's a tradition, a long-term tradition."
"Some people think it's still money," Paul concluded.
Gold has become a popular asset amid fiscal and inflationary fears worldwide, most recently in light of fresh debt fears in the U.S., where the government has hit its $14.3 trillion debt limit.
Congress must approve lifting that limit, but Republicans and Democrats have been sparring over terms surrounding such a move.
"If the U.S. debt ceiling is not extended in time and the United States were to default even briefly, or if they had to find work-arounds to pay their short-term expenses, that has got to be positive for gold," says David Jollie, an analyst at Mitsui & Co Precious Metals, according to Reuters.
"But if they extend the debt ceiling without agreeing any cuts to expenditure or tax increases, you have to say that is inflationary, and therefore positive for gold as well."
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