There is a way for Greece to avert an economic collapse in 2015, momentarily at least. Hint: it involves the country’s stockpiles of gold.
Right now, Greek banks are closed. There is a daily withdrawal limit of 60 euros on bank machines. Some bank machines have run out of 20 euro notes and people can only withdraw 50 euros. Moreover, gas stations are running out of fuel, and supermarkets are being emptied at surprising speeds.
There is a cure. And that is the country’s 112.5 tons of official gold reserves. (Source: World Gold Council, last accessed July 9, 2015.)
Simple math will show that 112.5 tons of gold equates to $4.18 billion at today’s gold price. That would be a huge amount of money for Greece. If the country decides to sell its gold, it could use the proceeds to make its 1.5 billion euro ($1.7 billion) interest payment to the International Monetary Fund (IMF). Moreover, it can also put money into the country’s banking system, so pensioners can get their checks and people can do business.
The country is not selling its gold, however, and there is a good reason for it. There has been a debate on whether Greece should leave the eurozone and start its own currency. Bringing back the drachma would give Greece the ability to set its own monetary policy. However, to secure a new currency, Greece would need to have a substantial amount of gold reserve as a guarantee to redeem promises to pay depositors, paper money holders, and trading partners. With its lackluster economy, gold is of significant importance if the country decides to leave the eurozone.
Cyprus, one of the smallest economies in the eurozone, was reported to be thinking of liquidating its gold reserves in 2013. The country was in deep financial trouble, with its banks facing insolvency problems. Eventually, Cyprus received a bailout and did not sell its gold. Note that Cyprus only had 13.9 tons of gold reserves, which is quite a small amount compared to Greece’s 112.5 tons.