Gold held outside the banking system can protect assets from sanctions, but it's hard to move and convert to cash quickly. Mark Moss explains the trade-off: domestic vaults offer stronger protection, while more accessible gold is easier to spend but more vulnerable to freezes.
Gold can serve as a hedge against sanction risk. Of course, right? But only at the cost of sharply reducing liquidity. So I can get out of the banking system, get them out of dollars and put them into gold. Now they can't be sanctioned because the gold's in my safe, but now I've sacrificed liquidity. Gold held outside the international financial system is not a liability of any foreign sovereign and is therefore, in principle, insulated from asset freezes or payment restrictions. So if I don't keep it in the financial system, if I keep it in my own vault, Then they can't freeze it. But the effectiveness of gold as sanctions hedge depends critically on custody arrangement. Closer the gold holdings are kept to domestic vaults locally, the stronger the protection, obviously. So if I keep it in my own vaults, it's— my protection is strong, but the weaker their immediate usability. Now I have it, but how do I use it? Because gold's big and heavy and expensive to move. So gold stored domestically becomes extremely difficult to mobilize rapidly for FX liquidity. Remember this piece. It's very difficult to use for foreign currency FX liquidity and international payments.
