Best of the Week
Most Popular
1. Crude Oil and Water: How Climate Change is Threatening our Two Most Precious Commodities - Richard_Mills
2.The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases - Dan_Amerman
3.Best Cash ISA Savings for Rising UK Interest Rates and High Inflation - March 2018 - Nadeem_Walayat
4.Fed Interest Hikes, US Dollar, and Gold - Zeal_LLC
5.What Happens Next after February’s Stock Market Selloff - Troy_Bombardia
6.The 'Beast from the East' UK Extreme Snow Weather - Sheffield Day 2 - N_Walayat
7.Currencies Will Be ‘Flushed Down the Toilet’ Triggering a ‘Mad Rush into Gold’ - MoneyMetals
8.Significant Decline In Stocks On The Cards! -Enda_Glynn
9.Land Rover Discovery Sport Extreme Driving "Beast from the East" Snow Weather Test - N_Walayat
10.SILVER Large Specualtors Net Short Position 15 Year Anniversary - Clive_Maund
Last 7 days
SPX Wedge Breaks and Double Gaps: Capatulation but GOLD is Coiling for Breakout - 24th Mar 18
The Fed’s Interest Rate Hikes Aren’t Bearish for the Stock Market - 24th Mar 18
Will Gold Price Breakout? 3 Things to Watch… - 24th Mar 18
Gold Junior Mining Stocks GDXJ Fundamentals - 23rd Mar 18
Global Trade War Fears See Precious Metals Gain And Stocks Fall - 23rd Mar 18
Stocks Recovering from a "deep dive" Overnight - 23rd Mar 18
Blaming the Fed for Weaker Greenback US Dollar - 23rd Mar 18
Watch This Group Signal Stock Market Trend Changes - 22nd Mar 18
Stocks are Gapping Beneath the Trendline Support - 22nd Mar 18
Fed Action Casts Shadow on Bullish Case for Stocks - 22nd Mar 18
A Strong Economy and Weak Stock Market is Bullish for Stocks - 22nd Mar 18
Fed Raises US Interest Rates 25bp – Where Are We In The Stock Market Cycle? - 22nd Mar 18
Why Spotify Will Likely Surge During Its IPO - 22nd Mar 18
SY Police Arrest Woman for Blowing Trumpet at Sheffield Tree Felling Protest - 22nd Mar 18
Facebook: The Anti-Social Network Covert Data Gathering - 21st Mar 18
Additional Signs for Gold and Silver Amid Increasing FOMC Tension - 21st Mar 18
Credit Concerns In U.S. Growing As LIBOR OIS Surges to 2009 High - 21st Mar 18
Stock Markets Are Flat-to-lower Before the FOMC - 21st Mar 18
Will Powell’s Actions Pop Stock Market Perfection - 21st Mar 18
Economic Moral Hazards of the International Criminal Court - and Philippines Withdrawal - 21st Mar 18
Larry Kudlow vs. Vladimir Putin on Gold - 21st Mar 18
Trump Builds Economy and War Machine - 21st Mar 18
This Stock Market "Illusion" Can Destroy Once-Vibrant Portfolios - 21st Mar 18
Gold Short-term Pull Back in Progress - 20th Mar 18
Stocks Appear to be Under Pressure - 20th Mar 18
Time To Eliminate Your Wall Street Tax? - 20th Mar 18
The Beast from the East Snow, UK Roads Driving Car Accidents - 20th Mar 18
Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - 19th Mar 18
2018 Reversal Dates for Gold, Silver and Gold Stocks - 19th Mar 18
This Tech Breakthrough Could Save The Electric Car Market - 19th Mar 18
Stocks Set to Open Lower, Should You Buy? - 19th Mar 18
The Wealth Machine That Rising Interest Rates Create Conflict With The National Debt - 19th Mar 18
Affiliate Marketing Tips and Network Recommendations - 19th Mar 18
Do Stocks Bull Market Tops Need Breadth Divergences? - 19th Mar 18
Doritos Instant £500 Win! Why Super Market Shelves are Empty - 19th Mar 18
Bonds, Inflation & the Market Amigos - 19th Mar 18
US Housing Real Estate Market and Banking Pressures Are Building - 19th Mar 18
Stock Market Bulls Last Stand? - 18th Mar 18
Putin Flip-Flops Like A Drunken Whore On Bitcoin Cryptocurrency Legalization - 18th Mar 18
How to Legally Manipulate Interest Rates - 18th Mar 18
Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - 18th Mar 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

World Bank Head Calls for Monetary System Linked to Gold

Politics / Global Financial System Nov 10, 2010 - 10:46 AM GMT

By: Barry_Grey


Best Financial Markets Analysis ArticleIn the run-up to the G20 summit of leading economies, to be held Thursday and Friday in Seoul, the president of the World Bank has published a column in the Financial Times calling for a fundamental revamping of the global currency system involving a lesser role for the US dollar and a modified gold standard. The Financial Times underscored the significance of the column by making it the subject of its front-page lead article on Monday.

In his column, World Bank chief Robert Zoellick, a former US Treasury official, points to the crisis conditions prompting his proposal. He begins by observing: “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 cooperation.”

Here Zoellick is referring to the announcement by the US Federal Reserve last week of a second round of “quantitative easing”—the printing of hundreds of billions of dollars to buy US Treasury securities—and the sharp criticisms of this move by major US trade competitors including China, Germany, South Africa and Brazil. The US move is seen correctly as an intensification of a deliberate policy to cheapen the dollar in order to make exports less expensive and foreign imports more expensive.

The Obama administration is focusing its economic attack on China. It wants to line up Europe, Japan, India and other Asian countries at the G20 summit behind its demand that China allow its currency to appreciate more rapidly.

However, its cheap dollar policy is roiling relations with other export-oriented, surplus nations, most notably Germany. In unusually bellicose language, German Finance Minister Wolfgang Schäuble denounced the US in an interview this week with Spiegel magazine. Saying the American “growth model” is in “deep crisis,” he added, “The United States lived on borrowed money for too long, inflating its financial sector and neglecting its small and mid-sized industrial companies.”

He went on to declare: “The Fed’s decisions bring more uncertainty to the global economy… It’s inconsistent for the Americans to accuse the Chinese of manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money.”

The US—the world’s biggest debtor nation—is exploiting the privileged position of the dollar as the primary world reserve and trading currency to drive up the exchange rates of its rivals, in essence a trade war measure. It is unleashing a flood of speculative capital into so-called emerging economies in Asia, Latin America and Africa, pushing their currencies even higher and creating the danger of speculative bubbles and inflation.

This aggressive and unilateralist policy on the part of the United States is exacerbating global tensions and destabilizing the world monetary and financial system. It is heightening the likelihood of a breakdown of international relations and the outbreak of the type of uncontrolled currency and trade warfare that characterized the Great Depression and led ultimately to World War II.

In his column, Zoellick urges the G20 to “build a cooperative monetary system that reflects emerging economic conditions.” He continues: “This new system is likely to need to involve the dollar, the euro, the yen, the pound and a [Chinese] renminbi that moves towards internationalization and then an open capital account.”

The new system, he writes, “should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although text books may view gold as the old money, markets are using gold as an alternative money asset today.”

This is a tacit acknowledgment that the monetary system that has existed since 1971 and is rooted in the system established at the end of World War II—and which is anchored by the US dollar—is no longer viable. It is furthermore an admission that there is no other national currency that can replace the dollar as the basis of global currency relations.

One expression of eroding confidence in the US dollar—and the monetary system based on the dollar—is the spectacular surge in gold prices. On Monday, gold for December delivery set new records, closing above $1,400 an ounce.

Zoellick argues that the “scope of changes since 1971” justifies the erection of a new monetary system. However, he is silent on the most important of these changes—the vast decline in the global economic position of the United States and the decay of American capitalism.

The United States emerged from the wreckage of World War II as the unchallenged global economic hegemon. Its industry dominated world markets. The US share of world auto production in 1950 was 79 percent. In 1955, it accounted for nearly 40 percent of world steel production. At the same time, the vast bulk of the world supply of gold was in Fort Knox.

The US engineered the postwar recovery of world capitalism, ensuring that the monetary and trade architecture was favorable to its interests. Key to the postwar recovery and expansion was the establishment of a new monetary system, the Bretton Woods system, under which exchange rates were fixed and pegged to the dollar. The dollar served as the world reserve and trading currency, but it was backed by gold at the rate of $35 per ounce.

However, this arrangement contained a fundamental contradiction—the attempt to use a national currency as a world currency. Even the massive economic wealth and power of the United States could not override the basic contradiction between the global economy and the nation-state system of capitalism.

By the late 1960s, the quantity of dollars held overseas far outstripped US gold reserves, and the US was facing growing competition from resurgent Germany and Japan. The Bretton Woods system collapsed in August of 1971 when the Nixon administration, facing a run on the dollar, removed the gold backing from the US currency.

That ushered in so-called Bretton Woods II, a system of floating exchange rates tied to the dollar—an arrangement that was even more dependent on international confidence in the strength of American capitalism. That confidence has progressively eroded as the US has built up ever-greater debts and its industrial base has withered, leaving its economy increasingly dependent on financial speculation.

The financial crash of September 2008, which was centered on Wall Street, has fatally undermined confidence in the dollar. The fact that the financial crisis takes the form of a currency war and breakdown in the system of exchange rates—what had been the pillar of the postwar recovery of world capitalism—underscores the fact that the current crisis is not merely a conjunctural downturn, but rather a systemic breakdown of the system.

Zoellick’s proposal for a return to some form of gold standard is both utopian and reactionary. There is no possibility that the dramatic shift in economic weight between the older imperialist powers—first and foremost, the US—and emerging economies such as China and India can peacefully produce a new international economic equilibrium based on a reduced role for the US dollar. As in the twentieth century, so in the twenty first, the declining powers will not willingly accept a lesser position and the struggle for control of markets, raw materials and sources of cheap labor inevitably leads toward world war.

Were the proposal for a new gold standard to be carried out, moreover, it would result in a catastrophic contraction of credit, plunging the world into a depression exceeding that of the 1930s.

The breakdown of the currency system is an expression of an insoluble crisis of the capitalist system that can be resolved in a progressive manner only through the international revolutionary movement of the working class and the establishment of world socialism.

World Socialist Web Site

Barry Grey is a frequent contributor to Global Research. Global Research Articles by Barry Grey

© Copyright Barry Grey , Global Research, 2010

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules