New Gold Standard Coming?

By Patrick A. Heller, Numismatic News November 09, 2010

In an essay appearing in the Nov. 7, 2010, issue of London’s Financial Times, World Bank president Robert Zoellick advocated a new global monetary system that might include gold.

Zoellick urged support for a system that “is likely to need to involve the dollar, the euro, the yen, the pound, and the renminbi (yuan) that moves toward internationalization and then an open capital account. The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”

Zoellick’s essay appeared in advance of the upcoming G-20 meeting coming up later this week in South Korea. I’m sure the timing is not a coincidence.

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He went on to write, “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”

The U.S. has presented its posture for the upcoming G-20 meeting. It wants countries to commit to current account targets, where trade surpluses and deficits will be limited to a specific percentage (4 percent has been suggested) of each country’s Gross Domestic Product. If such a policy were now in effect, China would be forced to either sharply increase the value of the yuan or curb exports.

German finance minister Wolfgang Schauble has described the current U.S. economic model as being in a “deep crisis.” He criticized last week’s decision for the Federal Reserve to buy Treasury debt to increase the U.S. money supply by $600 billion when he said, “It is not consistent when the Americans accuse the Chinese of exchange rate manipulation and then steer the dollar exchange rate artificially lower with the help of their (central bank’s) printing press.”

The U.S. government’s position was further attacked Monday when Chinese Vice Finance Minister Zhu Guangyao said, “As a major reserve currency issuer, for the United States to launch a second round of quantitative easing at this time, we feel that it did not recognize its responsibility to stabilize global markets and did not think about the impact of excessive liquidity on emerging markets.”

Also on Monday, a leading Chinese newspaper warned that the U.S. government’s actions last week were a form of indirect currency manipulation that could lead to a new round of currency wars and even global economic collapse.

On a different front, one result of the Republicans winning control of the House of Representatives last week is that hard money advocate Rep. Ron Paul, R-Texas, the ranking Republican on the House Subcommittee for Domestic Monetary Policy and Technology, is likely to become the chairman of the subcommittee. In anticipation, Paul stated in an interview last Thursday, “I will approach that committee like no one has ever approached it because we are living in times like no one has ever seen.” He then said that his first priority will be to open up the books of the Federal Reserve to public scrutiny. “We need to create transparency there – to see what it is they are buying and lending, and who it is they are dealing with,” he said.

Taken together, it is becoming obvious that foreigners and Americans alike can see that the U.S. dollar will continue a major decline in value, if not outright failure of the currency. The dollar is not alone in this predicament. The price of gold has come back to set new record highs in several other currencies and is near the record high as measured in euros.

To me, it is obvious that all currencies are due to fall significantly in value, whether from the actions of a currency’s own government to knock it down or from a desire by the public and central banks to avoid holding currencies because of the potential risk of loss in the future. It is no longer a joke to suggest that many currencies will fail.

On the other hand, gold is not a currency, it is money. It will not fail.

Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at CoinUpdate (http://www.coinupdate.com). His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).