Slowly but steadily, it has once again become a subject of profound economic analysis. The gold standard abolished by governments about a century ago now seems to be a potential ‘magic wand’ to help find a way out from the financial crisis.
According to a number of market analysts, nowadays the world community needs the classical gold standard existed between 1880 and 1914 to improve the foreign exchange and financial situation. It is considered to be the most useful, economical and elegant monetary system: the gold standard regulation mechanism functioned automatically without state interference in the exchange rates system.
On his part, Philippe Simonnot, a French economist, has been for a long time advocating for expediency of a comeback to the gold standard and consequently for anchoring national currencies to the precious metal.
Last November, World Bank President Robert Zoellick called for employing an updated version of gold standard as an “international reference point of market expectations about inflation, deflation and future currency values.” In particular, Zoellick proposed to establish a five-currency system involving the dollar, the euro, the yen, the pound and the renminbi, and anchor them to gold as a new global standard.
True, a bit later, the World Bank Chief said that he did not think it possible to return to the 19th century, to a fixed exchange rate system which existed during the gold standard.
What will the return to the mono-metal monetary system bring, according to its adherents? Undoubtedly, it may bring a greater stability for the current global currency and financial system that it extremely needs. Thus, banks will not be able to afford non-estimated risks, because they will have to keep gold as collateral for currencies they operate to avoid bankruptcy. National banks, in their turn, will stop printing money at their own discretion.
‘Neo-metallists’ say: gold has a high intrinsic value and that is why it does not get devalued like its paper duplicates. Gold standard advocates stress that its use will make the economy more sustainable and not liable to inflation because in case of a gold standard a government may not print money not secured by gold.
The public survey made in the U.S. by Bloomberg confirmed that ordinary tax-payers realized the danger of uncontrollable printing. The survey revealed that most of the respondents support the abolishment of the Federal Reserve System (FRS) as such and restoration of control over the printing machine.
The FRS itself that has got the world hooked on the dollar ‘needle’ has a serious reason for concern after Republican Ron Paul has become its new ‘trustee’ being the head of the House Financial Services Subcommittee on Domestic Monetary Policy. He is well-known as the author of the bestseller ‘Еnd the Fed.’ He is also known for trying to audit the US Central Bank.
The gold standard was initially introduced by Great Britain (juridically, at the end of the 18th century, and actually since 1821). In France, Germany, Russia, Italy, Japan, the United States and other capitalist countries, introduction of the gold standard was completed in the last quarter of the 19th century. The move resulted in a relatively sustainable world monetary standard made by the monetary systems of individual countries. This contributed much to the growth of industrial production, domestic commodity turnover and international trade, as well as to extending and strengthening the credit system.
The gold coin standard collapsed with the onset of the general crisis of capitalism when World War One broke out. It was replaced with paper money circulation. The technical bottleneck of the gold standard was the need to regularly transport large quantities of gold between countries, which was costly and difficult (often, it was useless to offer national currency abroad, because it had no value there).
In an economy based on the gold standard it is guaranteed that every monetary unit can be exchanged for an appropriate quantity of gold upon the first request. In payments between the states using the gold standard a fixed exchange rate is used based on the ratio of their currencies to the gold mass unit.
Alex Shishlo, Editor of the European Bureau of Rough&Polished in Brussels
