Might the world’s major trading economies ever return
to a Gold Standard?
Notwithstanding the philosophical arguments in favour of a
return to the classical Gold Standard, there would be many hurdles, underpinned
by concerns over inflation and central banks’ expansive monetary policies.
At what gold price would countries return to the Gold
Standard, for example? Returning at today’s gold price does not seem feasible.
Concern over the value of fiat currencies would no doubt result in households
redeeming fiat currencies en masse for gold, which would quickly deplete
central banks’ gold reserves. They would soon be off the Gold Standard. But
returning at a higher price would have important wealth distribution
consequences for countries that hold or produce gold and those that don’t.
A return to the Gold Standard would also necessitate
agreement and participation among the world’s major trading economies. Attempts
to reach international agreement on changes to the global economic and
financial architecture usually have ended in failure, Bretton Woods being the
major exception8. This lack of international cooperation was the root cause of
the failure of the classical Gold Standard, and is probably the most
significant impediment to a new one ever being created.
Even if the problems of establishing a Gold Standard were
overcome, policy makers would still need to address the fundamental problem
that the annual growth in the gold stock – currently around one per cent per
year - would not necessarily match growth in the monetary base.
Gold does have a critical new role to play in the
international monetary system. The analysis of this new role is currently the
subject of much debate internationally, a debate in which the World Gold
Council is actively involved.
8Boughton, J., A New
Bretton Woods?, (2009), in IMF Finance and Development, http://www.imf.org/external/pubs/ft/fandd/2009/03/boughton.htm
https://www.gold.org/history-and-facts/gold-money
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