November 10th, 2010
07:37 PM GMT
We buy GOLD
by Ali Velshi
Gold is back in vogue; and, perhaps the gold standard is next. I'm talking about a monetary system whereby central banks value their currencies to a fixed weight of gold. That's the system we had in the United States until Presdient Richard Nixon took the U.S. dollar off it in 1971. Since then, the Federal Reserve has managed the money supply by swinging from raising interest rates and pulling back buying up debt to printing money and lowering rates depending on the Fed's read of the economic situation.
Now, World Bank president– and former high official at the U.S. Treasury– Robert Zoellick says we need to go back to some sort of gold standard to guide currency movements involving the U.S. dollar, the euro, the British pound, the Japanese yen, and China's currency, the renminbi. Zoellick's system would employ gold as the international reference point on inflation and deflation levels, and of course, currency values. The advantage of a gold standard system is long-term price stabilty; it limits the power of governments to go out print money whenever it wants to.
And, as we go into the G20 conference in Seoul, that message will become more attractive, as big exporters like Germany and China blast the U.S. Fed for injecting 600 billion dollars into the financial system. As German finance minister Wolfgang Shauble puts it: "It's not consistent when the Americans accuse the Chinese of exchange rate manipulation and then steer the dollar artifcially lower with the help of their printing press."
The Americans wouldn't have that luxury under a gold standard system. The question is would the U.S. be willing to cede that authority to gold?
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