I don't think that any international monetary system, whether based on gold or on a particular fiat currency like the US$or the Euro, can last for a long time in a globalized economic world. It would require participating countries to give up too much of their sovereign power. While that might be a good thing for the global economy, individual countries would not see it that way. China appears to want to become the pre-eminent global goods producer, so it keeps the renminbi low in relation to other currencies. The other BRICs are rapidly becoming major economic powers and would probably not like to see their right to manipulate their currencies interfered with. The US meanwhile wants to end its current economic gloom by "quantitatively easing" (dumping?) many billions of dollars ($600 billion currently) onto its economy. Our hope in Canada is that this doesn't cause the US$ to fall very far because of its impact on the prices of commodities we produce and ship across the line. If it does, we may have to do some "quantitative easing" ourselves.
I believe we have to accept that Bretton Woods and a US dollar as the global reserve currency based on gold are now a thing of the past. They were a product of the naive hope that burst forth with the end of WWII. Things have changed greatly since then, and perhaps the best one can hope for is that countries that battle each other with currencies may stand a lesser chance of battling each other with bullets and bombs. Ed ----- Original Message ----- From: Robert Stennett To: EDUCATION RE-DESIGNING WORK INCOME DISTRIBUTION Sent: Wednesday, November 10, 2010 9:49 AM Subject: [Futurework] return to the gold standard? 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 The Dollar's New and Old Rivals November 9, 2010 Jeffrey Frankel is a professor at Harvard University’s 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. The dollar’s share of international reserves has been declining ever since Richard Nixon unilaterally ended the Bretton Woods system in 1971. The dollar’s 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 China’s 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 world’s central banks had been gradually selling off their stocks. But all that changed in 2009. The People’s 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. ------------------------------------------------------------------------------ _______________________________________________ Futurework mailing list [email protected] https://lists.uwaterloo.ca/mailman/listinfo/futurework
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