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Category: Economics

Gearing Up For A Return To The Gold Standard?

Since 1971, when the gold standard finally died, killed off by the US government, the value of the dollar has fallen almost 4% per year. You need more...

28 August 2019


Since 1971, when the gold standard finally died, killed off by the US government, the value of the dollar has fallen almost 4% per year. You need more than $6 today to buy the same item or amount of stuff that you purchased back then.

Is it conceivable that President Trump might try to turn back the clock, and return to the gold standard? He has chosen Judy Shelton as his nomination for the board of the US Federal Reserve, America’s central bank. Shelton is a true believer in the gold standard. She has published a book describing her thoughts on fixing the dollar and benchmarking its value to gold. She believes that the Fed has becomes unnecessarily involved in trade polices rather than sticking to its role of regulating the monetary system.

Returning to the gold standard would set global markets on edge as well as probably sending the gold price stratospherically higher. It would be an explosion in the world’s financial markets; no-one can predict the consequences. Shelton believes the gold standard helped the United States to prosper for several hundred years. In today’s world, this thought is deeply unconventional – but Shelton believes that gold is a steady commodity, a long-term store of value, and will help to stabilise the US dollar.

Currently across the globe, many countries link their currencies to the likes of the US dollar or the Euro. This means that they have little or no control over their own local currency and are at the risk of the monetary decisions made by the US. As the Euro or the Dollar weaken this has a destabilising impact of the global economy. Shelton believes that gold would provide the stability that our world requires. Today, market forces are a driving factor and dictate how capital is spent and what is produced. These forces are controlled and manipulated by governments around the world. One way to control money is through the credit markets, by printing more paper currency and government bonds, which creates a pile of debt that keeps rising. Throughout history we have seen that this leads to a spike in inflation and higher prices. If the United States went back to the gold standard, this would radically curtail the US government’s ability to print paper money. Goodness knows what it would mean for the vast quantity of US government debt held around the globe.

In this macroeconomic uncertainty it’s perhaps little wonder that countries are ramping up their gold buying programmes. China and Russia are leading this charge, as they build their gold reserves to build confidence in a world where trust in the Western system is faltering. This will lead to a drastic rise in the price of gold and eventually lead to a de facto reinstatement of gold as the lead international currency, with the US dollar dislodged from its dominance.

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