Gold Cover

Gold Cover 

a gold reserve fund intended to back an issue of bank notes and in some countries also to guarantee other obligations of the central bank of issue, where these obligations are due on presentation. When the gold standard was in effect, the gold cover served to stabilize the currency. Under present paper money systems, gold cover of bank notes and other central bank obligations has been repealed in a great majority of countries, including the most powerful ones. In a few countries (such as Switzerland and Belgium), the legal requirement for the gold cover of paper money remains in force by tradition. For example, in Switzerland, not less than 40 percent of the bank notes in circulation must be legally backed by gold reserves of the Swiss national bank. In fact, approximately 90 percent of Swiss bank notes are backed by gold reserves.