After making some very unwelcome advances calling for a return to the gold reserve, World Bank head Robert Zoellick is again back, and refuses to shut up. The FT reports that earlier Zoellick said the increasing use of gold as a monetary asset was an “elephant in the room” that was being ignored by policymakers in the debate over how to correct global trade and fiscal imbalances. It gets worse: during a conference presentation, Zoellick said the price of gold indicated that the world was heading towards a new monetary system in which the US dollar would be only one of a number of reserve currencies with flexible exchange rates. As we highlighted yesterday, a variety of factors have already conspired to make it appears that not the dollar, but the Chinese currency is increasingly starting to act as a reserve currency on its own merit.
More comments from Zoellick:
“Gold is now being viewed as an alternative monetary asset. This is not the same as a gold standard,” said Mr Zoellick. “Gold has become a reference point because holders of money see weak or uncertain growth prospects in all currencies other than the renminbi, and the renminbi is not free for exchange.
“So, in relative terms, gold is appealing to people who ask where should I put my money. It is a hedge against uncertainty.”
Mr Zoellick said the use of gold indicated that the largest economies “need pro-growth policies, structural reforms, open trade and an anti-protectionist agenda”. He said that would build confidence in private sector development.
This means that no matter how high the margin requirements on precious metals, the inevitable move in the price of gold and silver is just one, as there is no way that the FX tension can ever be resolved now that the only possible outcome for the global economy is a race to deflate. The World Bank head agrees:
He said there was no “silver bullet” that would resolve the world’s problems with trade imbalances and capital flows, however, suggesting that achieving a revised international trading and monetary system would require a process of “relentless incrementalism”.
Yet in an attempt to not come off as alarmist, Zoellick toned down previous comments from Brazil's Mantega (that's the guy with the hot daughter), that a full blown currency war has broken out.
“I don’t believe we are going to be in a currency war; I think this is an overstated description,” he said. “I have had to deal with real wars in my career, so I know what they are and I’m sensitive to the use of the term.
“[But] I do think there are tensions in the system, and if not properly managed those tensions risk an increase in protectionism.”
We are all ears to understand just what alternative to protectionism and FX wars exists for the world... and just what the alternative case for gold as a pseudo gold standard is.