The European Redemption Pact being put together by Germany as an answer to the Eurozone crisis is requiring the gold reserves of each debtor state to back up the eurobond.
This would insure the lender, whoever that may be, that they would get the gold reserves of whichever European state borrowed money if they came in to a situation that they could not pay the debt back. The Debtor would then be able to collect the gold when payment obligations can not be met.
This has caused some heated arguments from some of the indebted states as both Italy and Portugal have been resisting any urges to sell their gold up to this point.
A currency ultimately has no value if the society that is using it has no confidence in it, which is why seashells and tulips have been used in the past. I just find it rather entertaining how excited countries get when lending parties attempt to get their hands on that “old dusty relic with no value”, a comment I have heard so many times by those that feel gold has no position in the worlds financial system.
If that was the case what’s the big deal for each of the European states to put their gold as collateral? Or, if they planned on paying back the loans, what would the big deal be????
They wouldn’t be borrowing money with no intention of paying it back, would they?? or knowing that they would never get in to a situation to pay back that kind of money? A country wouldn’t do that to their own currency would they?
Read the article here, it is somewhat technical for non investors discussing the relation to bonds, bunds and GDP among other things.