The WORLD is heading for a difficult period of monetary transition and turbulence during which gold owners "will benefit", according to a new research report from a central-bank think tank.
Commissioned by the gold industry's market development body the World Gold Council, the new 44-page report from the London-based Official Monetary and Financial Institutions Forum (OMFIF) finds that "Western economies have attempted to dismantle gold's monetary role.
"[But] this has failed."
In his foreword to the report, and looking at the challenges to the two main reserve currencies today – the Dollar and the Euro – "For the first time in many years, gold stands well prepared to move once more towards the centre-stage," writes left-wing British economist Meghnad Desai of the OMFIF's advisory board.
"This could be the start of an immensely important phase in the history of world money."
The Chinese authorities, says the report, want their currency – the Renminbi – to take its place as a major reserve currency, better reflecting China's position as the world's second-largest economy.
"This will not happen overnight," explains finance author and consultant David Marsh, chairman of the OMFIF. "During this time of doubt and transition, history teaches us that gold will be a natural beneficiary."
Both the Dollar and the Euro have severe "shortcomings" says the research, pointing to continued and growing US deficits, and the Eurozone's internal structure is "highly unbalanced".
"All this casts a dark shadow over world monetary arrangements," says Marsh in an introductory video released today by the World Gold Council.
"When bonds issued by governments are no longer seen as risk-free, gold – an asset which is no one's liability – comes into its own."
One policy solution to the turbulence ahead, says the OMFIF's report, would be to extend the unit of account used by central bankers worldwide – the Special Drawing Right – to include the so-called "R-currencies" of emerging economic powers (the Rand, Real, Renminbi, Rouble and Rupee) with the addition of gold, already a key central bank reserve asset.
"This would be a form of indexation to add to the SDR’s attractiveness," says Desai. "Gold would not need to be paid out, but its Dollar or Renminbi or Rouble equivalent would be if the SDR had a gold content. By moving counter-cyclically to the Dollar, gold could improve the stabilising properties of the SDR.
"If the threats to the Dollar and the Euro worsen, a large SDR issue improved by some gold content and the R-currencies may be urgently required."