Libyan gold valued at $6.5bn

Libya has gold reserves amongst the top 25 in the world, worth more than $6.5bn at current prices.

The reserves, which are kept within Libya, could see Colonel Gaddafi through an extended period of tough economic sanctions and asset seizures by the international community.

History tells us that armies have long been paid in gold or other metals - troops of the Roman empire, for example, were paid in silver and bronze coins.

Could Colonel Gaddafi use Libya's gold to pay the army or mercenaries?

World Business News' Manuela Saragosa spoke to Adrian Ash, head of research at Bullion Vault, an online gold trading firm, in London.

The full transcript of the interview is below:

Adrian Ash: The thing about gold, and this is true throughout history, is it's really about economic freedom. Sometimes that works to the advantage of dictators and sometimes that works to the advantage of private individuals in terms of personal liberty.

Obviously for Gaddafi to have this anonymous highly liquid asset potentially is quite useful. What I think is more interesting perhaps is that compared to his central bank reserves, he has actually got another $93 billion worth of stuff.

Manuela Saragosa: Euros, dollars?

Adrian Ash: Wasn't exactly right in physical paper dollars or euros, and I would imagine that the militia that he is trying to pay off or encourage to keep fighting, they are going to want that before they want gold, because those dollars are internationally accepted. You can use them as a means of payment anywhere.

Manuela Saragosa: And is it unusual to see a central bank like the Libyan Central Bank to actually have physical gold on its premises?

Adrian Ash: Well, I mean, certainly the New York Fed, the Bank of England, the European Central Bank, they all have large gold holdings on their premises. But in terms of smaller gold reserve, in terms of smaller nations, smaller economies, yes typically what you will find is, they will actually have a kind of trading balance at one of the major trading centres, London, New York. So, yeah, it is relatively unusual to actually see a small nation hoarding all of this domestically.

Manuela Saragosa: Why has the Libyan Central Bank hoarded it then?

Adrian Ash: Well, I mean obviously, as they say, gold is basically about, in the final analysis, it's the ultimate means of payment and I guess Gaddafi has been looking at this day for some time. I mean he has got experience of it since 1996. with sanctions throughout.

Manuela Saragosa: How easy is it for Colonel Gaddafi to convert that gold into cash if he wants to?

Adrian Ash: Well, I think it is going to be very difficult at the moment for him to convert that wholesale because the international market is not going to speak to him. He is going to have to find a friendly regime and they are going to basically need to be in a position to, first of all, get it physically out of Libya.

I would be surprised if it was still in Tripoli. I would imagine that, similar to the French in the Second World War who moved their gold reserves out of Paris and deep into the mountains pretty quick, the gold won't be available anymore. It will be somewhere tucked away. So I don't think it's going to be particularly easy.

Manuela Saragosa: So, is it actually useful then having all this gold in any way?

Adrian Ash: Again, historically, if you look back, gold is the ultimate means of payment, the ultimate form of exchange in crisis. Historically, you have seen Nazi Germany was able to fund some of its supply purchases during the war, Great Britain with the cash-and-carry in the first couple of years of the war with the US, but I don't know how much really this is going to prop up Gaddafi's regime.

Manuela Saragosa: But if it came to crunch, you could for example melt the gold down to pay your army with it, you could use it that way?

Adrian Ash: Sure. You could chop it up, absolutely right. I mean if he has got it in large bar form.

Manuela Saragosa: Is it difficult to chop up?

Adrian Ash: No. I mean gold is relatively soft and I mean I am sure he would have the machinery there. He could always melt it down and have it knocked into smaller units, and certainly I mean that would be a great way of paying. I mean his militia I am sure are looking to take any kind of payment they can get.

Manuela Saragosa: The data the IMF has suggested it's about 148 tonnes of gold. How does that look, I mean what does that look like?

Adrian Ash: Well, that's actually not a great deal of gold. All the gold in the world that has ever been mined in history is reckoned at about 165,000 tonnes. If you got that all together and cast into a single cube, it will be about 20 metres on each edge. So it's really not that much. It's just incredibly heavy.