For decades, governments have spent and created new money as if there were no consequences. But history has proven time and time again that it almost always leads in the same direction. First comes over-indebtedness, then the stubborn ignoring of warning signs, and finally the collapse of the system.
Today we can track all this in real time. The fiat money of developed countries is also weakening spectacularly; the phenomenon of declining fiat money is not unique to emerging countries. The global financial system is slowly but surely moving away from a model based solely on paper money and towards a mixed direction in which gold can once again play an increasingly important role. Many see it again as one of the pillars of long-term stability.
The three boundaries that the world of fiat money crossed long ago
How did we get here? The answer lies in the three main limits that advanced economies have successively crossed, especially since 2021. These are not abstract economic terms, but very real, practical limits, the consequences of which are already felt in our daily lives.
The first is the economic constraint. The point here is that after a certain point the increase in government debt no longer stimulates economic growth, but on the contrary produces smaller and smaller surpluses. Although government spending increases GDP on paper, real productivity does not grow along with it and in many cases stagnates. Real wages are hardly rising and in some cases are even falling. State expenditure is increasing every year, and daily purchasing power is not getting stronger.
The second is the budget constraint, which is often called the crowding-out effect. This means that the state is spending more and more money on interest and social spending, driving productive investments out of the private sector. All this is happening despite the fact that the world’s central banks have been trying to keep the economy alive for years with low interest rates and massive monetary stimulus. The reality, however, is that interest payments are taking up an increasing share of the budget. Global public debt has already reached a record high of $102 trillion, well above pre-pandemic levels. The US and France, for example, have run up huge annual deficits in peacetime, despite economic growth.
The third is the inflation limit. This comes into play when governments try to tackle budget deficits by printing money. In such cases, inflation actually acts as a hidden tax, in effect as a slow but continuous devaluation of money. Persistent inflation precedes real wage growth, creating a sense of unaffordability among many households. When the euro or dollar weakens, this also affects the forint, increasing the risk of imported inflation.
These boundaries are not crossed individually, they together create a dangerous situation. They are creating record debt, rising interest costs and persistent budget deficits. Meanwhile, major central banks such as the ECB and the Fed are posting huge losses as their portfolios produce negative real returns, partly due to inflation and partly due to solvency problems. Although many economists have tried to downplay all this, government debt is no longer considered a clearly safe reserve.
Central banks’ gold buying frenzy: the figures speak for themselves
Central banks are well aware that fiat money has serious weaknesses. They see that government bonds no longer offer real security or predictable returns, and that paper previously considered risk-free has now become much more uncertain. Their response has been an unprecedented wave of gold buying, the magnitude of which surprised even the experts.
In 2022, official net gold purchases exceeded 1,100 tons, and remained above 1,000 tons in 2023 and 2024. This is more than double what central banks bought on average in the years 2010-2021. In 2024, exactly 1,045 tons entered official reserves, marking the third year in a row that purchases exceeded the 1,000-ton mark. Furthermore, there has been a fifteen-year trend in which central banks have bought more gold than they have sold each year. And the actual amount could be even higher, as many countries are increasing their supplies through unofficial channels.
According to the latest surveys, roughly a third of the world’s central banks plan to further expand their gold reserves in the coming years. Moreover, the majority of them, about 80 percent, believe that gold’s role among reserves will also increase globally. There are very simple reasons for this, namely persistent inflation, concerns about the stability of the financial system and increasing risks to the solvency of banks. Gold is particularly valuable in this situation because it does not go bankrupt, is not dependent on the decisions of one country or central bank, and retains its value even in the event of a crisis. Gold is therefore a kind of insurance against the paper issued by over-indebted states, especially when even central banks have less and less confidence in the money of the great powers.
Moreover, this trend is getting stronger and not smaller. Reserve managers increasingly see that money printing started during crises and that the slow recovery is not a temporary phenomenon, but a permanent part of the system. Gold, on the other hand, offers protection against hidden taxes caused by inflation and negative real returns, which slowly reduce savers’ wealth.
This turn is the IMF COFER statistically is also confirmed. The dollar’s dominance of global reserves fell below the 60 percent mark, while gold overtook both the dollar and the euro as central banks’ reserve of choice for the first time in four decades.
A hybrid reserve system is born: crypto can join gold
It is not that the dollar will collapse tomorrow, or that complete dedollarization has already begun. The dollar is still dominant, as almost 89 percent of global transactions take place in it, and about 57 percent of global reserves are still in dollars. But it is still a fact that there is a slowly erodingcurrency empire‘leading currency, behind which confidence is gradually eroding, and not only for the dollar, but also for the euro, the yen and other major currencies.
A new system is emerging, a hybrid reserve system, in which fiat money remains the means of daily use, but the center of gravity of the security reserves shifts noticeably. Central banks are hoarding more and more gold, and in the meantime a new player is emerging: decentralized cryptocurrencies. These, especially Bitcoin, are attractive because there is no central control behind them, they cannot be diluted at will, and they can provide long-term protection against inflation.
Some central banks are particularly nervous about the rise of crypto. The European Central Bank, for example, is trying to force the digital euro to better monitor money movements. However, this is more a sign of the desire for control and uncertainty than a real solution to the problems. Governments are still unwilling to make meaningful cuts, the US government is only taking tentative steps in this direction, while the debt ratio is already well above 100 percent and all serious reforms face political obstacles.
This current monetary restructuring will rewrite the rules of the game in the long term. Central banks are increasingly less confident in paper promises and instead want to reserve real money, i.e. assets that do not inflate and are not dependent on political decisions. The country that is the first to switch to a stable, disciplined monetary policy can gain a serious lead over the other countries. On the other hand, those who stick to old patterns can easily fall behind.
From a Hungarian perspective, this means that it is worth monitoring the movement of gold and decentralized assets (such as Bitcoin), as the weakening of global fiat systems could also affect the stability of the HUF. The risks are high, but the change has not only begun, but is already well underway.
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