Hat tip to Fauvi for the find:
World Bank head reaffirms gold as "reference point" to monetary system reform
Wednesday December 22, 2010 14:30:43 EST
PARIS, Dec 22, 2010 (Xinhua via COMTEX News Network) --
World Bank President Robert Zoellick reaffirmed his proposal to use gold as a "reference point" to reform the current international monetary system on Wednesday in Paris.
"What I suggested is that gold serves as a key reference point to allow people to assess the relations between different currencies," Zoellick told the press here at the end of his meeting with French President Nicolas Sarkozy in the Elysee Palace.
"It's an approach that we can take, others also estimate that we can establish a benchmark against prices of principal commodities," the World Bank president said in response to a journalist's question.
"I didn't propose a gold standard, which is an important distinction because it would directly link currency to gold," said Zoellick, denying reports that he had called for a return to the " gold standard" to modify the present monetary system, which he called "Bretton Woods II."
"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," Zoellick wrote in an article published in Monday's Financial Times.
Some media said Zoellick's proposal to revive gold's role in guiding exchange rates worked as a shock wave to current discussions and disputes over the international monetary system.
The "gold standard" is a system in which the standard economic unit of account is a fixed weight of gold.
Under the Bretton Woods system, which was set up in 1944 in the United States, the U.S. dollar was directly pegged to gold -- 35 dollars equaled per ounce -- while other currencies were pegged to the dollar. The Bretton Woods fixed exchange rate regime broke down in 1971, when the United States unilaterally terminated convertibility of the dollar to gold.
Misthos here. The most important global currency relationship that exists today is the Chinese RMB and the US Dollar. The US needs to desperately depreciate its currency to better manage debts and to increase exports, and historically, there has always been a strong currency (or gold) to devalue against. However, China is not allowing this to happen, or at least not as fast as the US would like, and so we have the situation we have today: A currency war of exporting inflation by the US to China.
Would gold be a better "currency" to depreciate against? And if this is not "technically" a gold standard, isn't this policy espoused by Zoellick giving gold a recognized monetary status? After all, those that believe that gold has a monetary status of sorts are usually ridiculed and consigned to the tin foil hat brigade. (myself included)
Nonetheless, knowing how governments love to spend, such a policy, in my opinion would be extremely inflationary to gold. There's a lot of debt out there, and a lot of global trade re-balancing to be done. The real question is: Are these goals possible, or realistic? Or will the system breakdown on its own, forcing the gold issue upon reluctant governments?
Time will tell.