In response to a question from Ron Paul, the Republican congressman of End the Fed fame, on whether gold was money Ben Bernanke gave a resounding “no”.
However, Mr Bernanke might have not been quite so decisive had he taken a look at one of the more arcane parts of the Fed’s own balance sheet.
For an asset to pass the currency test it must fulfil three criteria. It must be a store of value, a unit of account and a medium of exchange . Of course, in everyday economic life gold cannot be used as a medium of exchange – one would struggle to pay most firms in bullion. But the Fed is not most firms. And when it comes to settling their balances with one another, each of the twelve regional Federal Reserves and the Washington-based board does so in gold certificates (which are backed by gold held by the US Treasury).