A WELL-KNOWN financial commentator has called for a return to what he calls the "true gold standard", which would see the value of paper currencies tied to Gold Bullion.
Jim Grant, publisher of Grant's Interest Rate Observer, the long-running finance journal, told a conference in Edinburgh that returning to a gold standard would "restore the price mechanism to its proper place."
"Central bankers prefer the brute methods of command and control to the delicate simplicity of the price mechanism," said Grant, adding that a "true gold standard...favors no one nation, but synchronizes the balance of payments between all."
The gold standard – which operated until the outbreak of the First World War – required participating countries to fix the value of their currencies in terms of a specific quantity of Gold Bullion. It was reintroduced briefly as the Gold Exchange Standard between 1925 and 1931, when several countries abandoned it during the Great Depression.
Grant is not alone in positing a return to the gold standard. In an interview on Monday, Steve Forbes, the billionaire publisher and former US presidential candidate, predicted that the US could return to the gold standard within five years.
"People know that something is wrong with the Dollar," said Forbes." If the Dollar was as good as gold, other countries would want to buy it."
Robert Zoellick, president of the World Bank, suggested last year that Gold Bullion could form part of a new international payments mechanism.
Zoellick, writing in the Financial Times last November, said that the system would "[probably] need to involve the Dollar, the Euro, the Yen, the Pound and [the] Renminbi [Chinese Yuan]...the system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values."
Zoellick added that "although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."
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