From Mr Arun Motianey.
Sir, Those who reflexively attack any and all proposals for finding a role for gold in the international monetary system are no less true believers than those who argue for a return to a classical gold standard. And those who reflexively invoke Keynes’ characteristically showy description of the barbarous relic always end up displaying a similar veneration towards central bankers’ powers that is entirely undeserved after their poor record of predicting and managing economic crises.
Robert Zoellick’s article “ The G20 must look beyond Bretton Woods” (November 8) had just a single reference to gold in a long “package” of proposals. It was a sensible suggestion that international money – the medium of exchange used to settle international accounts of trade – should include an asset that for cultural and other conventional reasons cannot be debauched. This is because gold is an asset that is also no one’s liability. That is the first point in its favour.
There is another. The price of gold has proved itself the best global goods price index there is. The cost of a broad basket of goods (expressed in US dollars) is higher and rising much more quickly measured across the world economy than it is in the US (also, naturally, notated in dollars).
Why is this important? It is troubling because it weakens the argument of those who say that nominal exchange rates need to move more. Of course they do but an adjustment is already occurring in real exchange rates through inflation differentials; yet growth through rebalancing remains elusive. The price of gold is therefore signalling a fundamental disequilibrium in the world economy and policymakers would do well to take heed of it.
I heard no plea in Mr Zoellick’s article about a return to the gold standard. Those who did are merely hearing voices in the air.
New York, NY, US
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