We are increasingly reading and hearing about the need for the global economy to return to a gold standard. What a load of codswallop!
A decade ago as a fulltime currency strategist I started to think the free float of the major currencies wouldn't last much longer than a decade or more given that would be around 30 years since Nixon closed the Gold window. Basically my hypothesis was that markets would push too far on one or more of the big currencies and after the massive swings in value the political class would say enough is enough and either impose a transaction, tobin style, tax or re-institute controls.
Not for a second though did we think market based players would call for it to protect from the political class and central banks. But such is the case now that even Jim Grant in the attached link to a NY-Times op-ed thinks its a good idea. How to Make the Dollar Sound Again - NYTimes.com
As an Australian we knowthe value a almost free float can bring to an economy. Certainly the RBA has intervened from time to time to help smooth out the markets more aggressive moves but for the most part the RBA leaves well enough alone.
This call for a gold standard must be resited at all costs for the same reason that Gold standards have failed in the past and the EUR is under pressure from the periphery at the moment. because of cross country differences and the need for transfers of goods, services and capital the pressure ultimately is for the peg, which a gold standard or the EUR is must break. It's no different with bilateral arrangement such as the USD-CNY rate at the moment.
The price when set doesn't always hold true through time. As it was so it is.
US players such as Grant and other should use their considerable talents to help fix the malaise that is the US and global economy not throw populist solutions from the sidelines.
No comments:
Post a Comment