Question

Country A is under gold standard, meanwhile, Country B is under fiat money. Due to Covid-19, the reserves in both countries were short. How Country A increases their gold reserves in a recession? How Country B increases their gold reserves in a recession? Note that the covid-19 affected the global economy growth become negative. (25m)

Answer 1

Fiat money is the money in which the currencies are often regulated through intervention of the central banks and they can even print their own currencies in order to suit with various kinds of economic cycles.

It can be seen that Country A is under the gold standard,and Country B is under the the Fiat money and country A has increased their gold reserve in a recession ,whereas, country B should be trying to acquire more of the gold through Fiat money and country B should be trying to monitor the central banks policy through qualitative easing into the interest rates and regulatory Reserve requirement so that it will help in stimulation of the demand into the economy and it will also lead into creation of reserves and country B can also increase the gold reserve by acquiring of the gold through the commodities exchange where the gold is continuously traded and it can also acquire a whole lot of Reserve in physical form in order to counter the economic recession and it can also help itself through having a high degree of stability through down cycle in the economy.

it can also be said that gold is treated as a defensive asset when other asset classes are falling and these assets are generally a counter Bets in recessionary period and they will be leading to increase in their prices during recessions and storing of gold will be leading to a counter hedging against down cycle in economy.