If Zoellick is proposing that gold will become just one of several reserve
currencies -- as Frankel suggests he is -- then you can can be sure that
all the printable currencies will continue to inflate according to the
political needs of governments from time to time. Gold can't be printed, of
course, and that is why it will continue to consolidate itself as a reserve
currency as it has been for the past ten years or so. Sooner or later it
will become de facto standard for all currencies by default.
Zoellick is one of the most experienced international negotiators in the
world and he's now brought gold out of the closet and onto the G20 agenda
-- if not this week-end's but at some future summit not long hence.
Keith
At 09:49 10/11/2010 -0500, Barry wrote:
Some may be interested in this piece from this morning's NY Times.
Barry
<http://www.nytimes.com/roomfordebate/2010/11/09/back-to-a-gold-standard/the-dollars-new-and-old-rivals>http://www.nytimes.com/roomfordebate/2010/11/09/back-to-a-gold-standard/the-dollars-new-and-old-rivals
The Dollar's New and Old Rivals
November 9, 2010
<http://www.hks.harvard.edu/about/faculty-staff-directory/jeffrey-frankel>Jeffrey
Frankel is a professor at Harvard Universitys Kennedy School of
Government and a member of the National Bureau of Economic Research
Business Cycle Dating Committee, which officially declares recessions. He
is the author of "On Exchange Rates."
I doubt very much if Mr. Zoellick has in mind a return to the gold
standard, though goldbugs and critics alike are talking as if he does.
The world is moving away from a monetary system in which the dollar is the
overwhelmingly dominant international reserve asset.
Even if one placed overwhelming weight on the objective of price stability
enough weight to contemplate a rigid straightjacket for monetary policy
gold would not be a suitable anchor. The economy would be hostage to the
vagaries of the world gold market, as it was in the 19th century:
suffering inflation during periods of gold discoveries and deflation
during periods of gold drought. This is well-known, and I am confident Bob
Zoellick understands it. (He and I were in the same macroeconomics seminar
at Swarthmore College in the 1970s.)
I think he is making another point that the world is moving away from a
monetary system in which the dollar is the overwhelmingly dominant
international reserve asset.
<http://content.ksg.harvard.edu/blog/jeff_frankels_weblog/2009/10/01/dollar-share-in-central-banks-fx-reserves-resumes-its-decline/>The
dollars share of international reserves has been declining ever since
Richard Nixon unilaterally ended the Bretton Woods system in 1971.
The dollars unique role is not an eternal god-given constant of the
universe, any more than it was for pound sterling. (The dollar of course
replaced the pound in the first half of the 20th century, with a lag of 25
years or more after the U.S. surpassed the U.K. economically.)
Will some asset replace the dollar, then? No, not a single asset. But we
are probably moving to a system where there will be as many as a half
dozen international reserve assets.
First, there is the euro. Despite the serious troubles facing it this
year, the euro has been a competitor for the dollar since it came into
being 11 years ago. Both the yen and the Swiss franc have to some extent
played safe haven roles during the last three years of global financial
turmoil. The pound is not out completely. Some day the renminbi will be
added to the roster of major international currencies, when Chinas
financial markets are sufficiently developed and open. Even the S.D.R.
(special drawing right) came back from the dead in 2009.
And, yes, gold too has re-joined the world monetary system. Gold was seen
as an anachronism as recently as a couple of years ago. The worlds
central banks had been gradually selling off their stocks. But all that
changed in 2009. The Peoples Bank of China, the Reserve Bank of India and
other central banks in Asia have bought gold. Understandably, they want to
diversify their reserves. It appears that central banks have stopped
selling gold even among advanced countries and that aggregate gold
reserves have risen over the last year. This is a multiple reserve asset
system.
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Keith Hudson, Saltford, England
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