Italy's deputy prime Matteo Salvini wants to close down the Italian Central Bank. In the process, he wants to transfer the bank's gold holding to the state.
The central bank holds 2452 tonnes of gold with a current value of 103 billion dollars. Against this, the state owes 2.34 trillion euros. This means that a sale of the gold in order to pay down on the debt would be futile. However, once the gold is in the hands of the state, the state can default on its debt. It can then issue its own currency backed by gold.
If the Italian state was to do this, a whopping 2.34 trillion euros in debt would become worthless over night. Anyone holding this debt as an asset will be that much poorer. Banks and pension founds will be in trouble. There will be a great deal of hardship for savers and pensioners alike. Those with savings in banks or pension founds may see a great deal of their savings evaporate.
The correct way to hedge against this eventuality is to keep a portion of our savings outside these institutions. Exposure to fiat currencies should be kept to a minimum. Anyone with savings should protect these by owning physical gold.
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