Hugo Chavez’s announcement that he will nationalize his country’s gold industry may come across as another in the long list of power grabs by the Venezuelan leader. But looked at from a larger vantage point, he is following the rest of the world’s drift toward a de facto international gold standard.

Venezuela’s gold mining was already officially nationalized in 1965, and the new measure means the government will enforce the law more stringently. The reason? Venezuela’s central bank already has 63 percent of its reserves in gold, now it wants to add more. It will repatriate the portion of that gold currently held abroad and use its control over the mines to augment its gold holdings. Central bank president Nelson Merentes simply said that this measure reflects “prudence.” Chavez put it more bluntly: “Let's convert [gold] into our international reserves because gold is increasing in its value.”

Gold is increasing in value because the largest paper money printers in the world like the United States and the European Union are debasing their currencies. It has sustained a steady march upward for a decade at more than 20 percent per year on average in U.S. dollar terms. 

Foreign central banks like Venezuela’s that hold dollars and other reserve currencies are realizing that these depreciate over time, having no collateral behind them, and the best expression of money that holds its value is gold. China, South Korea and Russia are some of the big emerging market economies to recently start supplanting foreign reserves with gold, but Chavez’s regime shows that even the socialists are not immune to this free-market trend.

Rather than an innovation, we are witnessing a return to the monetary practice that helped spawn industrial globalization. During the international gold standard of 1873-1913, countries used gold as their final money and settled international payments with it. This meant that trade relationships were balanced and exchange rates were fixed through a neutral asset that held its value. By relying on gold to back up their currencies, countries had an automatic and self-correcting mechanism to prevent financial imbalances.

The world may be a lot more sophisticated in general today, but its monetary system has regressed since the early 20th century. Dollars along with yen and euros have taken the place of gold in international reserves, which means that trade accounts don’t get settled and flows of hot money disrupt domestic economies. 

Consider the fact that at one point in 2008, foreign central banks held more than $1 trillion in U.S. housing agency securities as a proxy for dollar reserves. They were financing the American housing bubble merely by playing along with the rules of the world’s paper money system.

But the world has woken up since then. Hugo Chavez is just the latest leader to recognize that gold makes for a better monetary asset than Fannie Mae paper. His advisers have also talked about diversifying their foreign currency holdings, which means switching to paper currencies that depreciate less quickly than the dollar and euro. But "the once and future money," as the author Nathan Lewis calls it, is gold. 

The technology the world didn’t have in the 19th century like debit cards and e-payment systems has already made it easier for citizens and banks alike to use it that way. The world is prepared to step up to a 21st century gold standard, with Venezuela along for the ride.

Rich Danker is Project Director for Economics at American Principles Project, a public policy organization and writes for the blog Gold Standard 2012.