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November 10, 2010
Posted: 1937 GMT
We buy GOLD

We buy GOLD

by Ali Velshi

Gold is back in vogue; and, perhaps the gold standard is next. I'm talking about a monetary system whereby central banks value their currencies to a fixed weight of gold. That's the system we had in the United States until Presdient Richard Nixon took the U.S. dollar off it in 1971. Since then, the Federal Reserve has managed the money supply by swinging from raising interest rates and pulling back buying up debt to printing money and lowering rates depending on the Fed's read of the economic situation.

Now, World Bank president– and former high official at the U.S. Treasury– Robert Zoellick says we need to go back to some sort of gold standard to guide currency movements involving the U.S. dollar, the euro, the British pound, the Japanese yen, and China's currency, the renminbi. Zoellick's system would employ gold as the international reference point on inflation and deflation levels, and of course, currency values. The advantage of a gold standard system is long-term price stabilty; it limits the power of governments to go out print money whenever it wants to.

And, as we go into the G20 conference in Seoul, that message will become more attractive, as big exporters like Germany and China blast the U.S. Fed for injecting 600 billion dollars into the financial system. As German finance minister Wolfgang Shauble puts it: "It's not consistent when the Americans accuse the Chinese of exchange rate manipulation and then steer the dollar artifcially lower with the help of their printing press."

The Americans wouldn't have that luxury under a gold standard system. The question is would the U.S. be willing to cede that authority to gold?

Tune in Thursday at 2pm EST and 2000 CET for Quest and Ali's Q&A-style news quiz this week? Watch it unfold and take a bet on who will wint this week's Q&A.

Filed under: Q&A •Quest Means Business

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requiredreading   November 11th, 2010 9:49 am ET

I wonder why it is that the leaders of the G20 are fighting a currency war and blaming each other, which means that noone is willing to take responsibility.

As an aside, I read the article about quantitative easing: isn't one major consequence of quantitative easing also inflation, ie the price of commodities goes up, as, eg, wheat (even in relation to gold)?

In any case, I have been wondering whether the problem isn't so much currency, as it is a failure of political leaders and trade leaders to realize that they are functioning in different paradigms. With that I mean that political leaders see themselves representing the sovereignty of their nation (and thus their currency) within a global trade framework, for which the currency needs to be converted into an international trade currency (ie so far the dollar). The global trade network, on the other hand, works exclusively within an international finance environment, to which individual currencies are merely representations of local sovereignty. Therefore perhaps there needs to be a global currency, after all, and the paradigm viewpoint is one of a general "sea" of a neutral trade currency, which is converted to the sovereign currency only as it is required within each country. The international currency (which is PRACTICALLY in use already in the form of the US dollar, of course, might be defined by a standard of gold, or whatever else is chosen) needs to be governed, of course, but possibly the UN has infrastructure in place already...or the world bank? But it seems to me obvious that in effect a global trade currency must be separated from any individual nation's currency.
Also I wonder whether the global leaders are working with a clear working definition of the interfaces between finance, trade and politics, ie national governments. For a global currency it would be necessary to define and regulate the power of banks and governments (and credit and interest rates etc), in order to enable trade to work properly. As it is, so much of global financial dealings are digital anyway, so that the converting from one currency to another seems contrived, and as such perhaps even more prone to abuse by those who simply want to use currencies for personal gain. But there must necessarily be a conflict of interest between political leaders and trade and finance, and most likely the world economy (and I thought economists, and I am not an economist, understood world economy) will not be reformed or balanced (nor will local social unrest be taken care of), if these questions aren't solved on a level beyond blaming the others for their local monetary policy. Most likely none of the countries in or outside the G20 is above looking out for their own interest. But they are all dependent on a very interdependent global trade network, where nations are guarding their sovereignty, finance and communication are digital, but trade goods and the human population are real.

H   November 11th, 2010 7:44 pm ET

Hi Ali Velshi.

The German Finance Minister is called Wolfgang Schäuble. So maybe you would like to copy and paste his name from here 😉 (Or at least insert a letter "c".)

Treese   November 12th, 2010 2:09 am ET

OH it WAS Rich ! My big, sexy, handsome golden nugget of love – and all things Businessey.

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