Está en la página 1de 2

Beware of the golden standart

Some opinions originated in the western hemisphere recently called for the rebuilding of the New Bretton Woods System that involved fixed exchange rates with the US dollar as the key currency, a return of the gold standard. Some US political figures and scholars gave enormous publicity to the idea during their visit to Europe, and they seemed to have won over part of the market. As the US presidential campaign drew to an end, media also jumped on board the gold standard band wagon. An article by Walker Todd, research fellow for the American Institute for Economic Research (AIER) on the website Christian Science Monitor called for a return of gold standard in the US as means to tackle the financial crisis. The comeback of gold standard ideology is not an accident, and it results in the lack of credit for US dollars. Consequently, financial strategists in the US set their eyes on the gold standard for the purpose of maintaining the US leading position in the global financial market. Its European allies, who believe that it is not wise to vie for No.1 spot with US, agreed with an attitude of being on an equal footing. The material foundation for US and Europe to seek the return of gold standard is their large share of global gold reserve. According to the statistics released by IMF International Financial Statistics (IFS) in June 2008, global gold reserve totals 29,813.1 tons. The top ten gold holders are US, 8,133.5 tons, accounting for 27.28 percent of the worlds total, followed by Germany, 3,417.3 tons or 11.46 percent, while IMF is third with 3,217.3 tons or 10.79 percent. The rest on the list are France, Italy, Switzerland, Japan, the Netherlands, China and European Central Bank (ECB). China, ninth on the list, has 600 tons of gold reserve, only accounting for two percent of the worlds total. With current global monetary conditions, financial experts in US and Europe are quite aware of the fact that the gold standard that is supposed to come back is not the previous one; instead, it will be a fractional reserve system. Under its framework, the gold reserve will indirectly affect the amount of currency circulated around the world, which would hamper the fast economic growth on the level of currency supply. However, such a system could lead to following results: In light of the economic slowdown in the US and Europe, the fractional reserve system could meet the currency supply in those countries, and would not hinder the development of their economy. However, for the emerging economies such as China and India, the lack of gold reserve could not meet the monetary supply of rapid economic development. It is an unfavorable choice to adopt such a global monetary system, which would restrain the amount of currency in circulation and hinder the

development of economy and infrastructure in developing countries. Additionally, the developing countries have to purchase gold with their foreign exchanges, and in that way, US and Europe could withdraw dollars and euros to protect their leading positions in international financial system. Such a move goes against the direction with which the international community wishes to initiate some substantial reform on the existing international financial system. A debate by six Nobel Prize winners for Economics on the future of capitalism took place in Der Spiegel not long ago. Among the economic geniuses, only Joseph E. Stiglitz called for urgent attention to the interests of developing countries, and the new international financial system should also address that. As the international financial meltdown becomes increasingly fierce, the international community needs to go hand in hand and build up a comprehensive monetary system to tackle the crisis. Some industrialized nations need to create an equal, just and orderly financial system with a win-win concept through abandoning the idea of benefiting themselves at other peoples cost, because it complies with the common interests of all developing countries.