The U.S. dollar has reigned as the world's reserve currency for more than 60 years. That's a real anomaly in the history of paper money, according to Stansberry & Associates Investment Research founder Porter Stansberry, but the dollar's days on the throne are numbered. With a sea-change in the monetary system on the horizon—and drawing ever-nearer as more and more U.S. creditors turn toward hard assets and away from paper dollars—he tells The Gold Report in this exclusive interview that the world is approaching a return to "at least a de facto gold standard." Porter does not recommend bullion as "insurance" (because that suggests hope for the dollar when there is nothing to pin hope on) but rather as "the perfect natural money."

The Gold Report: As someone who invests in many sectors, Porter, what major trends are you watching in the global economy?

Porter Stansberry: The major trend is a switch in central banks' recycling of dollars. As you know, the United States has been a net debtor to the world each year since 1976, I believe. We've put a huge amount of dollars out into the world and those dollars have to be recycled in some way.

Up to this point, central banks have been buying mostly U.S. Treasuries. Over about the last 10 years they organized so-called sovereign wealth funds (SWFs) and have been buying trophy properties mostly, but also some operating U.S. businesses as a way to recycle those dollars. The most interesting thing I've seen in a very long time is that suddenly some central banks have decided to begin to exit the dollar system by using trade surpluses to buy gold instead of either U.S. Treasuries or U.S. assets. I happen to believe that this is a sea-change in the gold and monetary system that will ultimately result in a return to at least a de facto gold standard.

I know my view is pretty far outside the mainstream, but historically, paper monies don't last. Our paper money, which has been exclusively a paper system—not backed by any precious metals since 1971—is getting long in the tooth and U.S. creditors are beginning to seriously doubt its sustainability. At some point, they will say, "This is ridiculous. We're not going to let you pay us back in dollars that you print. We're going to dump our Treasuries and buy gold because you can't print it." Gold has always been the stable basis of money and credit because it's very difficult to produce and it's timeless. It isn't consumed, it doesn't rust. An ounce of gold mined 10,000 years ago is very likely still in circulation today.

TGR: Granted, the U.S. dollar is the reserve currency, but could a single currency drive the whole world to return to a gold standard?

PS: If you want to understand how one currency could replace the U.S. dollar as the global reserve currency, look into Gresham's Law. Historically, bad money always drives out good. Accordingly, if a central bank anywhere in the world sets up its currency to be backed by any kind of hard currency, it would cause people all around the world to desire that currency for their savings, rather than dollars.

The Swiss don't do it anymore, but suppose, for example, that China decided to back all of its currency in silver. That would make a big difference in the market for dollars in particular because there are so many excess dollars around the world that have to be purchased every year that it would displace the dollar very quickly. All you would need is a country with a large role in global trade deciding to establish a currency based on a hard commodity standard, whether gold or silver or a bi-metal standard. Those standards historically have always been very respected.

Then as soon as you have a hard currency standard, people will begin to hoard that currency and dump the dollar. For example, the U.S. bi-metal standard in the 1800s undervalued silver relative to gold. Within about 10 years—from 1810 to about 1820—no silver coinage was left in the country. That happened in the 1960s as well, by the way. At that time, the face value of silver coins in circulation, the pre-1964 quarters, for example, was lower than the value of the metal. So they disappeared from circulation almost overnight.

The same thing would happen were another currency to be made more secure—with backing from gold or silver, for example—than the dollar. People would begin to hoard that currency and dump the dollar.

I believe that's what we're beginning to see with the central bank purchases of gold. It may be hard to believe, but it's true, that central banks have been net sellers of gold since the end of Bretton Woods. It's really an anomaly that for 35-plus years, there has been no challenge to the dollar standard. There's never been a time before in human history that the world reserve currency wasn't backed by gold or by a combination of gold and silver.

TGR: Is there enough gold in the world to return to a gold standard?

PS: Not enough, perhaps, to return to the earlier standard of $35 per ounce of gold. There are far too many dollars out there to make that conversion work. Clearly, the exchange rate would have to differ dramatically. Estimates I've seen say that if you divide the U.S. gold reserves by the total number of Federal Reserve base money, you get something $6,000 per ounce of gold. It just needs to be a new hard standard that the either the central bank begins to enforce or you abolish the central bank and set up state banks or private banks based on a firm foundation of gold.

TGR: With gold at $6,000, the doom-and-gloomers say the government would confiscate it from private investors. Is that a legitimate concern?

PS: You wouldn't want to underestimate the perfidy of the government. I have no doubt that the government will need to increase revenues substantially to avoid default on either debt or social welfare promises. How they will increase those revenues, I can't predict. It seems unlikely that they'll be able to effectively increase revenues by raising taxes because it just doesn't work. People will find ways to reduce their income to avoid the taxes or simply leave the country. So I wouldn't be surprised at all to see some kind of a land grab or an asset grab. I don't believe it will focus on gold because there just isn't enough privately held gold in the country to make a real big difference in revenues. I think they'll go after something else, perhaps a tax on net worth, which I've seen discussed in Congress already.

TGR: If central banks accumulate enough gold and if a major economic power moves to gold, how long would it be before we have a de facto gold standard?

PS: I don't think it would take very long at all. And in reference to a de facto gold standard, you can look at the European Central Bank. Of all the central banks in the world, it's really the only one that has been reducing the size of the balance sheet over the last couple of years. It's doing so because the Germans, in particular, have a memory, a recent history, of hyperinflation. They greatly fear hyperinflation so they're keeping the balance sheet relatively sound compared to the others.

That's why you've seen the Euro go so high against the dollar and why lots of people around the world demand Euro-based contracts. Brazilian Supermodel Gisele Bundchen, who's married to New England Patriots quarterback Tom Brady, is the highest-paid model in the world and she was supposedly insisting on Euros in her contract instead of dollars.

Speaking of Brazil, there's a country that may be strong enough to influence a global gold standard. It has almost no gold reserves now, but I think that in the next 12 months Brazil will buy enormous amounts of bullion. I also think you're going to see the same thing from countries in Asia, particularly South Korea and China. I'm telling you, it won't take very long to set off a firestorm of panicked gold buying by the world's central banks.

TGR: The other metal that people consider a basis for exchange is silver, which you touched on earlier. Do you think if we move away from fiat currencies into precious metals, that silver will continue in that vein as currency?

PS: I certainly do, and I think that's actually the best way for people to speculate on a change in the global monetary system. Historically, when there's been demand for monetary silver, silver traded at roughly a ratio of 1/15th the price of gold. The ratio does change slightly over time, going from 14 up to maybe 16.

But any time you have a monetary standard in which the ratio is set by fiat, you end up having a problem in that monetary system; so I would oppose any kind of mandated silver ratio. Given the market dynamic, it will tend toward 1/15th the price of gold. The silver ratio is between 50 and 60 now, so you'd have an enormous amount of leverage to the upside if there were to be a sudden demand for silver as a monetary base.

TGR: Would we need to see the beginnings of the conversion to gold as a monetary base to have silver rush up?

PS: There is no doubt in my mind that as central banks begin to abandon the dollar, there will be an enormous amount of monetary demand for silver and the silver ratio will plummet. If you look at all of the monetary crises over the last 100 years, any time that there has been even a whiff of a collapse of the dollar, the silver ratio has soared.

TGR: In our last interview, one of the nuggets of advice you gave was "don't buy if other people are." With ads to buy gold coins on commercial television now, isn't that a signal that other people are buying?

PS: I can't deny that there is more public interest in gold than I have ever seen in my career and, of course, the price of gold is the highest it's been during my career. I would much rather have built the portfolio of gold investments starting 10 years ago than now. It would be difficult to consider allocating a large amount of capital to gold at the moment.

On the other hand, a lot of the advertisements we see are not selling investors gold, but instead are asking people to send their old junk jewelry in exchange for some cash. To me, that's more evidence of people fleeing from the dollar than a sign of a top in gold prices. I don't think we're anywhere near the top in gold. That's because the key players in the gold price are central banks and it's only been in the last six months that they've even begun to buy gold. So this bull market for gold has a lot, lot further to run.

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