World Bank President Robert Zoellick Calls For Return To "Old Money" Gold Standard

Tyler Durden's picture

One of the most serious condemnations of the race to the currency bottom to date comes not come from some peripheral media, but from the head of the World Bank itself, who in a just released Op-Ed in the Financial Times says that since the system of floating currencies established by the 1971 Bretton Woods II system, has broken down, it is time to look to a new international system of commerce, one which "should also consider employing gold as an international reference point
of market expectations about inflation, deflation and future currency
values.
" In other words, welcome back gold standard 2. Of course, this proposal will never attain more than a casual academic reference, as even a partial gold standard will immediately establish a lower bound on how much any given monetary authority can debase its (and, by retaliation, others') currencies. What, however, if very curious, is why this proposal is being floated precisely 3 short days after the Fed has launched its most ambitious attempt to reflate global asset prices and devalue fiat paper. And as is well-known, the IMF has also been quietly proposing a return to an ven more powerful version of the SDR.... Just what will take for the scales to tip, and for the dollar to remain a reserve currency just in retrospect.

From the FT:

Writing in the Financial Times, Robert Zoellick, the bank's president since 2007, says a successor is needed to what he calls the "Bretton Woods II" system of floating currencies that has held since the Bretton Woods fixed exchange rate regime broke down in 1971.

Mr Zoellick, a former US Treasury official, calls for a system that "is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account". He adds: "The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values."

His views reflect disquiet with the international system, where persistent Chinese intervention to hold down the renminbi is blamed by the US and others for contributing to global current account imbalances and creating capital markets distortions.

Of course, with a market primed to discount every inflationary possibility, it would not be surprising to see precious metals to continue their near parabolic move higher over the past few days. Silver is already flirting with the $27 in the spot market tonight.

Full comments by Zoellick:

With talk of currency wars and disagreements over the US Federal Reserve’s policy of quantitative easing, the summit of the Group of 20 leading economies in Seoul this week is shaping up as the latest test of international co-operation. So we should ask: co-operation to what end?

When the G7 experimented with economic co-ordination in the 1980s, the Plaza and Louvre Accords focused attention on exchange rates. Yet the policy underpinnings ran deeper. The Reagan administration, guided by James Baker, the then Treasury secretary, wanted to resist a protectionist upsurge from Congress, like the one we see today. It therefore combined currency co-ordination with the launch of the Uruguay Round that created the World Trade Organisation and a push for free trade that led to agreements with Canada and Mexico. International leadership worked with domestic policies to boost competitiveness.

As part of this “package approach”, G7 countries were supposed to address the fundamentals of growth – today’s structural reform agenda. For example, the 1986 Tax Reform Act broadened the revenue base while slashing marginal income tax rates. Mr Baker worked with his G7 colleagues and central bankers to orchestrate international co-operation to build private-sector confidence.

History moved on after the huge changes of 1989 and the experience of the 1980s is still being debated, but this package approach was significant for its combination of pro-growth reforms, open trade and exchange rate co-ordination.

What might such an approach look like today? First, to focus on fundamentals, a key group of G20 countries should agree on parallel agendas of structural reforms, not just to rebalance demand but to spur growth. For example, China’s next five-year plan is supposed to transfer attention from export industries to new domestic businesses, and the service sector, provide more social services and shift financing from oligopolistic state-owned enterprises to ventures that will boost productivity and domestic demand.

With a new Congress, the US will need to address structural spending and ballooning debt that will tax future growth. President Barack Obama has also spoken of plans to boost competitiveness and revive free-trade agreements.

The US and China could agree on specific, mutually reinforcing steps to boost growth. Based on this, the two might also agree on a course for renminbi appreciation, or a move to wide bands for exchange rates. The US, in turn, could commit to resist tit-for-tat trade actions; or better, to advance agreements to open markets.

Second, other major economies, starting with the G7, should agree to forego currency intervention, except in rare circumstances agreed to by others. Other G7 countries may wish to boost confidence by committing to structural growth plans as well.

Third, these steps would assist emerging economies to adjust to asymmetries in recoveries by relying on flexible exchange rates and independent monetary policies. Some may need tools to cope with short-term hot money flows. The G20 could develop norms to guide these measures.

Fourth, the G20 should support growth by focusing on supply-side bottlenecks in developing countries. These economies are already contributing to half of global growth, and their import demand is rising twice as fast as that of advanced economies. The G20 should give special support to infrastructure, agriculture and developing healthy, skilled labour forces. The World Bank Group and the regional development banks could be the instruments of building multiple poles of future growth based on private sector development.

Fifth, the G20 should complement this growth recovery programme with a plan to build a co-operative monetary system that reflects emerging economic conditions. This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation 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. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.

The development of a monetary system to succeed “Bretton Woods II”, launched in 1971, will take time. But we need to begin. The scope of the changes since 1971 certainly matches those between 1945 and 1971 that prompted the shift from Bretton Woods I to II. Serious work should include possible changes in International Monetary Fund rules to review capital as well as current account policies, and connect IMF monetary assessments with WTO obligations not to use currency policies to remove trade concessions.

This package approach to economic co-operation reaches beyond the recent G20 dialogue, but the ideas are practical and feasible, not radical. And it has clear advantages. It supplies a growth and monetary agenda that parallels the G20 financial sector reforms. It could be built upon prompt incremental actions, combined with credible steps to be pursued over time, allowing for political dialogue at home. And it could help rebuild public and market confidence, which will remain under stress in 2011. Perhaps most importantly, this package could get governments ahead of problems instead of reacting to economic, political and social storms.

Drive or drift? How the G20 decides could determine whether multilateral co-operation can achieve a strong economic recovery.

Little can be added here except for one recent popular quote, which explains why we eagerly welcome more and more high level individuals condemning the fiat system, and petitioning to a reversion the system that actually worked without creating quadrillions in imaginary debt-money (and the inevitable fiat devaluation that always follows): "What is the most resilient parasite? Bacteria? A virus? An intestinal
worm? An idea. Resilient... highly contagious. Once an idea has taken
hold of the brain it's almost impossible to eradicate. An idea that is
fully formed - fully understood - that sticks; right in there somewhere."

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MsCreant's picture

Gordon? Chumba?

DoChenRollingBearing's picture

I saw Gordon reply not long ago (a week?).

There are just rumors about Chumba.  I for one would really like to have him back.  A real shoot first ask questions later kind of guy.  I hope he is OK.

MsCreant's picture

I have it on fairly reliable authority that Chumba is okay. Would love to tell you more, but I would betray a back channel confidence to do it, unless that person, while cruising the threads, were to speak up on the topic?

Oh yeah, Gold you female dogz in heat. Ow Ow Owooooooooo!

boricuadigm-shift's picture

Way too funny! Female dog! :-)

DoChenRollingBearing's picture

Don't say a thing!  Glad to hear that he may be OK.

breezer1's picture

yeah, be nice to see gordo back here. what is he supposed to be ok from?

Miles Kendig's picture

And the Buck's (GG & Chumba included) are goin' into rut for all that doe .. Good thing since some of that tree bark needs to get rubbed in a way only they can

Meanwhile, the echo "I Will Not Obey (but I will represent)" still rings from the digital landscape ..

JimRogers's picture

HONESTY BITCHEZ!!!!!!!

MsCreant's picture

Jim eh? So how's your buddy Krugman? 

Freewheelin Franklin's picture

SDRs, bitchez.

 

(that's not really Jim, is it?)

philgramm's picture

screw the gold standard.  just go to gold!!!!!!!!!

DoChenRollingBearing's picture

Yeah, um, I am becoming more "fofoa like", in that a gold standard is probably not workable.  And that gold should be viewed as the best wealth protector.

fofoa.blogspot.com

Internet Tough Guy's picture

Zoellick is describing Freegold, not the old pre-1933 gold standard. It's coming. A/FOA were right about this more than 10 years ago.

DoChenRollingBearing's picture

I missed that in Zoellick's commentary, I'll have to back and re-read it (zzzz...).

At his blog, I have seen some commentators say that since A/FOA wrote a rather long time ago that things may have unfolded differently than they foresaw.

But, Bearings don't have brains, just a hole there in the middle.  I certainly do not KNOW what is going to happen, but FOFOA's gold to $55,000 argument is persuasive.  When I first went to his site (2008), I looked at that number and thought WTF?  It does take a lot of time and thinking (for me anyway) to grasp his arguments, but he may be the most on the money guy on the 'Net.

saulysw's picture

"...but he may be the most on the GOLD guy on the 'Net"

I know it's not the common phrase, but that seems more accurate.

breezer1's picture

fofoa, ' gold may be priced at $1000 but try to get some '.

LeBalance's picture

Why? Good Cop / Bad Cop.

Divide and Conquer.

Polarize, raise ire, stir the chaos.

Ordo ab chao!

SOP.

(Just barter with your new local friends and minimize the use of any money.  Just cut Big Brother's margins and he dies.)

l1xx3r's picture

I could not agree more.

57-71's picture

Good luck with that, Bob.

hamurobby's picture

I was laughing when I saw this, and silver briefly touched $27.

MsCreant's picture

One of those GATA types I believe called for silver to go to $30 in 18 days. That was last week some time. Making good time so far.

hamurobby's picture

And now the dollar is SOARING! reversal exactly at 8pm, amazing.

breezer1's picture

james turk said it and the 14th will be the 18th day.

Freewheelin Franklin's picture

The 14th is a Sunday. We're talking business days. 18 business days.

title examiner's picture

Turning to a Gold Standard now to lock all this crisis debt?  Yes, let's just lock it all in place now, so we can never get it paid off--or worked out.

The Gold standard would be just perfect for those who own Gold mines.

Snidley Whipsnae's picture

Governments would nationalize or heavily tax all commodity mining operations.

IRS guy would be following every old prospector and his donkey around the wilderness, watching for a little color in the pan. lol

dogbreath's picture

snidley

I take your point with good humor BUT.  I am in the bussiness and have the legs.  I routinely kill junior geo's and techs who dare follow me.  I would say that many in the bussiness would welome the oportunity to be shadowed just for the laughs.  Time to go prospecting in the Brooks Range Ak.

-Michelle-'s picture

Wait a minute.  You routinely kill people who follow you around?  Or was that not to be taken literally?

dogbreath's picture

LOL.   meat a four.  They are generally toast,  dead legs with major cramps and to bed early without supper.

Oracle of Kypseli's picture

Taxation of miners will drive the gold price even higher.

boricuadigm-shift's picture

Remember, is not about locking the gold standard to any price.  It is letting it float freely.  To be fair, we could start the standard at $100k/oz.  That wouldn't be that bad!

DoChenRollingBearing's picture

$100,000 / oz.  I'm good with that.  Great idea.  C'mon Fed, make my day!

RockyRacoon's picture

Look out there, DCRB.  Those golden woodies can be dangerous.

espirit's picture

 

$100,000 USD might only be worth 10 or so IMF SDR's, in comparison to an oz of gold.

Don't forget unlimited BennieBux equals hyperinflation.

Charley's picture

Can someone tell me who moves to a gold standard when the world's best customer only deals in dollars?

Anyone?

Anyone?

Bueller?

Also, if it not too much to ask, what fills the hole left by the sudden elimination of 1/4 of the world market demand?

I am not sure people are thinking this through. They want a durable store of dead value, but they are not thinking about the actual living circuit of production and consumption...

Internet Tough Guy's picture

What are you going to do if the saudis settle for oil in euros, stop importing oil? That will teach them who is boss...

Charley's picture

Ask Saddam what Washington is going to do...

Use a Ouija board...

zaknick's picture

Arab response to your drivel:

 

Fool, we will burn the oil rather allow its theft. Try protecting the far flung pipelines and vulnerable infrastructure required for its shipment to an ever more energy hungry world.

 

Besides, the Saudis have an intimate relationship with central bankster mafia.

Canucklehead's picture

Who is going to pay for the social programs in the Middle East if you burn your own oil?  It's said that the Saudis need close to $70 per barrel to support the domestic pork barrel.

... I know that you don't see any of that largess, but what about your parents?

zaknick's picture

Actually sir, the production cost for a barrel of oil is considerably less than the market price. It is another market which is manipulated by the same people who literally own the fake fed.

In respect to some Arab social program I've never heard of, I would like to remind you that the man said the Saudis would be invaded which means that there is already death and destruction on the streets so who's talking about some social program?

Lastly, I'm not Arabic!

 

lol

 

May I suggest Geritol?

l1xx3r's picture

FOFOA had a good gold/oil manipulation set up article. Shows how both are manipulated using each other. Both down in price.

Charley's picture

Hey,

Don't get angry with me. But, he did try to price Iraqi oil in euros before we suddenly became so outraged about his use of the chemical weapons that we sold him...

I'm just sayin...

 

BigJim's picture

Yes, that's true. And I believe Iran takes euros now (http://en.wikipedia.org/wiki/Iranian_oil_bourse) which might partly explain TPTB's expressions of impatience to bomb them.

BigJim's picture

The Saudis would need to get security guarantees from Russia and China for this to be feasible. Uncle Sam would NOT be pleased if they started taking currencies other than the US $

Snidley Whipsnae's picture

Gold/silver are already acting as stores of value.

Is the dollar?

It is not impossible to have a store of value and a transaction currency circulating in the same economy.

As long as the store of value (gold) is left floating against the transaction currency whats the problem?

Too much printing of the transaction currency would drive up the store of value (gold).

It is happening as we sit here typing.

Charley's picture

The dollar is a worthless piece of fictional money ... it cannot be a store anything, much less value

But, in the circuit of production and consumption, the money function is only token anyway. I agree with those who oppose QE and the like; but it is just not going to happen. Banks like being able to create money at will...

Snidley Whipsnae's picture

" Banks like being able to create money at will..."

...and hasn't that worked out well. lol

Gold floats beside the Euro and is 'offically' revalued every quarter. So, in Euroland gold is a store of value and the Euro currency is a transaction currency. Is this difficult to understand?

Charley's picture

When the euro-zone can run unlimited trade and public deficits to consume everything Germany, Japan and China can throw on the world market, the euro will replace the dollar.

Until then, Europe is basically doing what they did in 1971: NOTHING. Please, I am not agreeing with these assholes in Washington, I just can read the tea leaves, and those booty-punks in Europe will dance to whatever tune Washington puts on the turntable...