From the Vault: Gold Prohibitions, Capital Controls, & How It Could Happen Again

Imagine waking up on Sunday morning and finding out that there’s a gold prohibition. That you, as a private citizen, can no longer own gold coins, bullion, or gold certificates.

Don’t worry about whether you actually own any of these right now. Just think about being told you “can’t”.

It’s hard to even picture how news like this would be delivered by tv broadcasters… 

…critics would be screaming at the camera. Supporters would be shrieking with giddy excitement. Average citizens would be in shock, not understanding what this even means for them.

As far fetched as that may sound, this has already happened.

Back on April 5, 1933, or 87 years ago this Sunday.

The US was at the end of the Great Depression, markets were finally beginning to show signs of recovery, and President Franklin D. Roosevelt signed Executive Order 6102.

Those were unprecedented times.

According to FDR, this Executive Order and the gold prohibition was “necessary” to drive economic activity. You see, the “hoarding” of gold, it was thought, would only make the depression worse. 

It’s impossible to say if that was true. But it’s important to note the external reason used to justify this unprecedented decision.

Ultimately, FDR’s government didn’t want private citizens hoarding the one thing that still had value in the economy, gold.

gold prohibition fdr signing

Hindsight is 20/20. But it’s interesting that individuals who planned ahead, protected their wealth, and made prudent choices were ultimately restricted from continuing to do just that.

Most people today would probably argue that this was the right thing to do.

In fact, many people would probably say that the gold prohibition supporting not hoarding gold and putting your money to work to help drive the economy during the depression was their duty.

Maybe that’s true.

But what’s concerning, and a relevant lesson to consider today is that they didn’t have a choice.

Private citizens, who had accumulated wealth were told what they could and could not do with their money.

How Would You Have Reacted to Gold Prohibition?

Now, you might be saying “the government only told them that they couldn’t own gold.” But what the US government really did was tell people that they couldn’t own the one asset (gold) that had any value at all.

  • What would you have done?
  • How would you have protected yourself or your family?
  • What would you have done with your gold, if you had any at the time?

These are questions worth considering because the situation of being told what you can and cannot do with your money isn’t as far fetched as you’d think.

To this day, governments around the world impose restrictions on their citizens and residents. Some restrict the flow of capital and heavily tax the purchase of different currencies and assets.

Argentina, China, and South Africa are just a few of the countries where governments restrict how much money their citizens can “remove” from their borders.

This limits overseas investments, purchasing international real estate, and in many cases opening and unlocking the advantages of offshore accounts.

But then again, that’s the point.

These governments are trying to force their citizens to keep spending their money inside the local economy — sound familiar?

Like FDR, and the many politicians since then, government representatives in these countries are making important financial decisions for their citizens… without giving them a choice.

Don’t Think Something Like Gold Prohibition Could Happen to You?

It’s a mistake to think that these capital controls, financial restrictions, and gold prohibition will never be applied in your country. Chances are your government has used them in the past and will again in the future.

Regardless of where you’re from, where you live, or where you have bank accounts, there is always a risk that these kinds of restrictions can be introduced.

Just ask the Argentinians, South Africans, Lebanese, or any of the other nationalities that are living with exchange controls and restrictions right now.

And before jumping to the conclusion that these countries are somehow “different,” or are economically inferior to your home country, just take a look at this…

Case Study: South Africa

South Africa enjoyed a period of sustained growth in the early 2000s, averaging above 4% from 1999 to 2008. To compare, during that same period the US economy grew by just over 2.5%.

And yet, South African’s who started businesses, created jobs and generated wealth during that period were punished when the country fell on hard times.

Politicians used economic challenges to justify strict capital requirements and subject private citizens to government oversight, restrictions, and more failed monetary policy, with no way to escape.

Case Study: Argentina

Likewise, while everyone loves to hate on the Argentine economy, it too has had times of glory. Both in the 1990’s posting growth of up to 10.5% and in the mid-2000s reaching up to 9% growth.

The periods in between, when Argentina faced sharp economic declines, were driven by the government’s dependency on short-term capital and an overvalued fixed exchange.

Here too, the government used monetary restrictions against private citizens to combat a plummeting economy. These poor economic conditions were brought on by the flawed economic planning and monetary policy of the Argentine government.

Why Is Your Country Different?

There are countless examples of countries that have enjoyed sustained periods of economic prosperity, only to see it disappear due to failed monetary policy, misguided politicians, and corrupt governments.

But like you, individuals in these countries, trusted that their governments wouldn’t do anything to restrict their choices. They were wrong.

What Could They (And You) Have Done Instead?

If you purchased gold outside of the continental US before April 5, 1933, you had choices.

In the same way that citizens of Argentina, South Africa, or Lebanon could have dramatically increased their options and protected their money. By opening international bank accounts and moving money out of the country before restrictions.

Now, you might be wondering “How could they have known when the restrictions were coming?”

Well, that’s just it. No one can predict the future. But everyone can observe and watch for warning signs.

How to Protect Yourself Against Government Restrictions & Gold Prohibition

Opening bank accounts in foreign jurisdictions has many benefits. But international diversification during times of crisis is one of the most important.

We’re not talking about higher interest rates, better banks, or safer jurisdictions–although you’ll get all that too.

International diversification is about increasing your freedom. The choices you make today give you more options and ensure that you are always in a position of strength. No matter what happens.

Last week, GlobalBanks wrote about opening high-interest USD accounts in Panama, how to tap into the private banking world as a high earner, how to open US banks as a foreigner, and opening accounts in Canada as a non-resident.

For members of GlobalBanks IQ, we’ve been publishing reports that explain and unlock the best international and offshore banking options around the world, including Singapore, Panama, Georgia, Mauritius, the Isle of Man, and more. We have also been updating the GlobalBanks Database, which includes 250+ banks from 50+ countries.

So, if you’re ready to take action and start opening international accounts now, you can access GlobalBanks IQ, our dedicated international banking intelligence platform.

GlobalBanks IQ gives you everything you need to start finding and opening accounts for you or your business today.

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