Kathmandu: Throughout the evolution of human civilization, economic exchange systems have taken many forms. Breaking through the limitations and hassles of the primitive 'barter system,' gold eventually emerged as the globally accepted form of currency. Its limited availability, physical durability, and resistance to corrosion led it to the era of the 'Gold Standard,' where the value of paper money was directly linked to gold reserves. However, today’s world economy no longer moves in such a straight line. Modern political economy is caught in a triangular grip: the traditional power of gold, the impenetrable hegemony of the US dollar, and global geopolitical conflicts (war). This article dissects the complex economics between gold, the dollar, and war, and the deep impact it has on developing nations like Nepal.

The Historical ‘Tug of War’ Between Gold and the Dollar
Until mid-1971, the world economy was based on the 'Bretton Woods System,' which pegged the value of the US dollar to gold ($35 per ounce of gold), with other currencies linked to the dollar. However, on August 15, 1971, then-US President Richard Nixon unilaterally abolished the mandatory arrangement of converting dollars into gold. Known in history as the 'Nixon Shock,' this event freed the dollar from its golden shackles and turned it into a 'fiat currency' (money backed by government decree). From this point, the dollar built its own empire, establishing a historical 'inverse relationship' with gold.

Generally, when the dollar strengthens, gold prices fall, and when the dollar weakens, gold becomes more expensive. The key to this fluctuation lies with the US Federal Reserve (the Fed). When inflation rises in America, the Fed increases interest rates. High interest rates attract investors to sell gold and buy dollar-based Treasury bonds (since bonds pay interest and gold does not). Consequently, gold prices drop. Conversely, when the economy enters a recession and the Fed cuts rates, the dollar weakens and investors flock to gold as a safe haven, causing its price to skyrocket.

The Economics of War and Gold
In economic theory, gold is considered a 'safe haven asset.' Capital that flows into the stock market and industries during times of peace and growth shifts overnight into gold when war, pandemics, or geopolitical crises erupt.

The reasons are both psychological and strategic. During wartime, national currencies can crash, banks can fail, and stock markets can collapse. But the value of gold does not depend on a government's promise or a company’s balance sheet (it has no 'counterparty risk'). The ongoing Russia-Ukraine war and tensions in the Middle East (Israel-Hamas-Iran) have proven this. These wars have disrupted global supply chains and increased fears of a future energy crisis, pushing gold prices to break historical records.

If these wars drag on, the world will face deep 'stagflation' (a state where economic growth stalls but prices keep rising). In such a massive crisis, investor confidence will shatter completely, and gold prices will rise unpredictably. This will destroy the purchasing power of small and poor nations, trapping the global economy in a whirlpool of extreme recession.

The Currency Cold War: Strategies to Save vs. End the Dollar

Today, the world is witnessing not just a war of weapons, but a cold war of currencies. On one hand, America wants to maintain its global dollar hegemony; on the other, emerging powers are seeking to end the dollar's reign.

The US Strategy: America maintains the dollar's power through two main weapons—'Petrodollars' and 'Interest Rates.' In the 1970s, by guaranteeing military protection to Saudi Arabia in exchange for trading oil exclusively in dollars, the US achieved its greatest strategic victory. As long as the world needs oil, the demand for dollars remains. Additionally, the Fed's interest rate policies control the flow of dollars, constantly trying to keep gold in its shadow.

Strategies of Other Nations (De-dollarization): But circumstances are changing. Specifically, the BRICS nations (Brazil, Russia, India, China, and South Africa) are on an aggressive path toward 'de-dollarization.' Economic sanctions on Russia and its expulsion from the SWIFT system have alarmed China and other countries. Fearing that the US could use the dollar as a weapon, the central banks of China and Russia are now selling dollars and piling gold into their vaults. The historic gold purchases by central banks in 2022 and 2023 raise a serious question: Is the world unofficially trying to return to a 'Gold Standard' or at least a 'gold-backed' exchange system?

Illusion vs. Reality (Public Perception vs. Economic Fact)
There is a massive gap between the public psychology regarding gold and economic reality. Ordinary people always view gold as a 'safe and high-profit' investment. However, the economic reality is different. Investors like Warren Buffett consider gold an unproductive asset. This is because gold doesn't provide rent like real estate, dividends like stocks, or interest like bank deposits. It is a passive metal. The only profit from gold is the 'capital gain' (the difference between the purchase price and the increased current price). In reality, gold does not create wealth; it merely protects purchasing power from inflation.

An abnormal rise in gold prices is a sign of poor global economic health. While expensive gold increases global inflation, it also exposes a lack of trust in fiat currency. However, a sudden crash in gold prices causes chaos in large hedge funds and gold-based financial instruments (ETFs), though it provides relief to general consumers and importing nations.

The Nepali Context and Psychology
The direct impact of this macro-economic politics reaches Nepal’s kitchens and national treasury. There is a deep cultural psychology attached to gold in Nepali society. Here, gold is not just an investment; it is a 'cultural prestige' and an 'emergency fund' for crises. Weddings, festivals, and social competition keep the demand for gold perpetually high.

However, for a country like Nepal, which is completely import-dependent and reliant on remittances, this obsession with gold is a serious economic disease. To buy gold, Nepal must spend its precious US dollars (foreign exchange reserves). When a Nepali citizen uses remittance money to buy gold jewelry and tucks it away in a cupboard, that capital leaves the economic cycle. It neither creates jobs nor helps open industries. With billions of rupees frozen in this 'unproductive sector,' the country suffers from a massive 'capital drain.' On one hand, the country lacks liquid capital for infrastructure development; on the other, billions in public wealth lie sleeping in lockers in the form of gold.

When the dollar strengthens in the international market, the Nepali Rupee (which is pegged to the Indian Rupee) automatically weakens. Using a weak rupee to pay for expensive dollars to import overpriced gold puts immense pressure on the country's 'Balance of Payments.' This is why the Nepal Rastra Bank is often forced to impose quota systems on gold imports.

Conclusion
Gold, the dollar, and war are not just news headlines; they are the invisible gears driving the global economy. As long as geopolitical instability and the US-BRICS power struggle persist, the clash between the glint of gold and the dominance of the dollar will continue. For countries like Nepal to survive these global waves, it is essential to bring about a policy and psychological 'shift'—encouraging citizens to invest in productive capital markets or entrepreneurship rather than unproductive gold.