Ron Paul: Gold essentially has been demonetized and it’s proceeding—even the Swiss now are talking about selling half of their gold. And if this is the case, would you advise that we should seriously think now about getting rid of our gold, getting rid of it out of the IMF, get rid of it out of our Treasury? Why hold it if we demonetized it? Milton Friedman would agree with this, and he’s pretty good at monetary policy.
Alan Greenspan: I agree with virtually everything Milton Friedman usually says. This is one of the few times I don’t.
Ron Paul:Why do we need it?
Greenspan: Well, it’s a very interesting issue. This issue,
incidentally, was debated in the United States in 1976, and the
conclusion was that we should hold our gold. And the reason is that gold
still represents the ultimate form of payment in the world. It’s
interesting that Germany in 1944 could buy materials during the war only
with gold. Fiat money paper in extremis is accepted by nobody, and gold
is always accepted and is the ultimate means of payment and is
perceived to be an element of stability in the currency and in the
ultimate value of the currency.
And that historically has always been the reason why governments hold gold.