Iran Sells Gold Certificates to Raise Money

The government of Iran has found a new way to get money. In addition to the issuance of government bonds, the government is now also Offering Gold Certificates, which can be traded through the Iranian stock exchange. Investors and savers can buy up to five two-gram gold coins, but instead of Gold Coins the government will issue certificates. These certificates can be exchanged for gold at a later time. Has Iran found a way to print gold?

Normally, governments issue government bonds to raise money, but that is becoming increasingly difficult for the Iranian government. Due to Western sanctions and domestic political unrest, confidence in the government and the Iranian currency is under pressure. The Iranian rial has depreciated by 29% against the dollar in four months. Since 2021, the coin has already lost almost half of its value.

Gold as collateral

Because there is so much uncertainty about the purchasing power of the Iranian currency, Iranian investors are reluctant to provide money to the government. Due to high inflation, the yield on government bonds is negative, so the government had to come up with another way to get money. And so they came up with the idea of borrowing money and paying it back in gold at a later time. Gold is much more stable in value than the Iranian currency, especially in the longer term.

With this new financing structure, the government will be able to Gold price between $50 and $60 million. That is approximately the value of the total of 450,000 two-gram gold coins that the government will offer in the form of certificates. Iranian investors can purchase these certificates through the Tehran Stock Exchange. It is not yet clear when they will be able to exchange their paper claims for real gold. Iranians who want to protect their assets are therefore better off Buy physical gold than these gold certificates.

Gold Certificates

Throughout history, gold has often played a role as collateral for money. Under a gold exchange standard, banknotes circulate in the economy that can be exchanged for physical bullion at the central bank. These new Iranian gold certificates are in fact also a kind of debt instrument, the value of which is determined by the promised gold and the creditworthiness of the Iranian government.

The U.S. dollar was also a kind of gold certificate until August 1971, because other central banks could exchange their dollars for gold at a rate of $35 per troy ounce until then. The fact that Iran now also has to give gold as collateral is a sign of weakness, because apparently there is not enough confidence in the value of the Iranian currency.

The question is how Iran intends to get hold of that gold. As we recently pointed out, Wrote there are rumors of a gold-backed crypto coin that Iran and Russia can trade with. For example, Iran can export goods to Russia and be paid in gold for it. By paying with cryptocurrencies or gold, both countries can circumvent Western financial sanctions.

Have a look at us YouTube channel

On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here  to subscribe.