by Louis James
Economic crises signal that the current system isn’t working as expected and needs improvement. When it comes to monetary systems, questioning their fundamentals can lead to doubts about whether the preferred medium of exchange will continue to be preferred for long. The large-scale whirlwind of economic trouble around the globe has pushed some to rethink the role of gold in the economy – and to actually move toward bringing it back.
A month ago, a rumor that India is going to pay in gold for oil imported from sanction-struck Iran sent shockwaves through the markets. It was no small deal, both in principle and volume: India is one of Iran’s largest oil buyers, responsible for about 22 percent of total exports and worth about US$12 billion per year. China is next with 13 percent, and Japan is third with about ten. All of them are having a hard time dealing with Iranian oil imports, as the country is under sanctions caused by Western fears regarding its nuclear program.
Then an Israeli news site claimed exclusive knowledge of a possible workaround between India and Iran: settling the purchases in gold. Indian government officials refused to comment, which added to the speculation.
On the surface, the arrangement looked like a great way to settle the purchases via a stable medium: Iranian currency, the rial, is not widely used outside its border, and gold’s inherent anonymity would have provided a perfect way to avoid unnecessary attention from the global community. Ironically, it was precisely the fact that the settlement was planned in gold that attracted so much attention.
It proved to be nothing but a rumor, however: the sides decided to arrange the deal in a more tactical manner. India will partly cover the purchases with its own currency, and Iran will later use those funds to acquire imports.
But gold is not out of the equation yet. The US-initiated sanctions were effective, at least in the sense of making international institutions avoid the pariah nation. Reuters reported that Iran has failed to organize imports of even basic food staples for its population of 74 million. Prices on local markets rose sharply; and as the country neared parliamentary elections on March 2, the government was taking radical steps to provide citizens with basic necessities. One of those unconventional solutions was offering gold as barter for food.