gold has exceeded $ 1,200 per ounce at the end of 2009, amidst rumors of investment in gold part of several Asian central banks, starting People's Bank of China. The dollar, the euro, the pound and the yen have all good reasons to weaken, but the current monetary system, this is not possible because of the weakening currency means a reinforcement of another. The foreign exchange reserves are at record high, and central banks have nothing available with solid buy. This raises the question: Are we to see the beginning of the end of the system based on flexible exchange rates non-convertible, prevailed from 1973? ESSECI could return to gold, or at least to a kind of gold standard?
surprise Chinese
It 's very unlikely in the near future a return to the gold standard itself, that is, to a system in which the coins through the main one, are fully convertible into gold at a predetermined fixed price, as was the case until 1971 when the various currencies were pegged to the dollar with a fixed exchange rate system, while the dollar was convertible gold at the fixed price of $ 35 per ounce. Too bad. However we approach it could happen to a similar system without reaching the final destination. The signs are not lacking, and there may be a "surprise" Chinese. Let's see why.
explosion
The explosion in global liquidity over the past decade has led the central bank reserves to grow by 414% between 1998 and late 2009 when have reached 7.5 trillion, grew at an annual rate of 14.5% over three times the growth recorded by the world GDP, an average of 4.6% per year. Most of the reserves to GDP growth has caused the shift from a percentage of the total impact on the latter stood at 4.2% during 1998, a 's 11.1% in the world, therefore, has been inundated 2008.Il Liquidity: Alan Greenspan, Ben Bernanke and slightly less their counterparts at the ECB, the Bank of England, the Bank of Japan and the People's Bank of China, have full responsibility for the result is that holding money has become increasingly less convenient. Therefore there should not be surprised if investors private (and even central banks themselves) now seek something more solid to invest: in October, India has bought 200 tons of gold from the International Monetary Fund, investing $ 6.7 billion.
the value of gold, gold has few practical uses, for which theoretically could lose almost all value if the world had no more sense to hold gold hold of old bus tickets. However, even in time of great disinflazionamento during the 90's, the price of gold has not gone below $ 250 an ounce, the exact cost of extraction from the mines more efficient. Today, it rose to $ 400 per ounce, so it is this minimum price level even in the event of abandonment of the monetary function? in fact, if investors decide that gold is not interesting, there are 50 years of production around the world, so there would be no need to produce more, and no floor to protect expensive to extract the gold price in this case could fall as low as $ 50 an ounce (not least because at that point would become a substitute for other metals for industrial uses), but it is very diffficile that the world embraced the theory according to which the Keynesian ' Gold is a "barbaric relic", and abandonment. As mentioned above, even in 90 years, investors - including banks stations - have kept a certain portion of their reserves in gold. And as the ideological decisions taken by the then Minister of the Treasury, Gordon Brown, to sell half of British gold reserves in 1999-2002, has quickly proved a resounding failure, because just then the world is back to buying gold and not only against U.S. dollar.
three ways
Because now you are in full resulting monetary policy, debt out of control and printing presses (figuratively) in action, the idea that we can return to a gold anchor, it is not as farfetched may seem, and indeed would be the only way to prevent future hyperinflationary lurking.
There are three ways you could achieve a similar return.
First of all, central bankers around the world, particularly those with the largest foreign exchange reserves as China and Japan, could increase their share of gold. According to official data from the IMF this share fell from 13.9% to 9.8% during the above-mentioned large increase in reserves occurred during the years 1998 to 2008, despite the gold price has more than tripled in the meantime. Even the return of the quota (minor) of 1998 would buy for 8.ooo tons (320 billion dollars), enough to push further up the price of gold, then if you go to share 20% (the share to be in in 1994) it would take to buy gold over 20,000 tonnes, about 7 years of production at prices atttuali, and almost 15% of all the existing gold (150,000 tonnes). This would reduce in proportion to the continuous creation of additional liquidity that the U.S. deficit in surplus producing countries with fixed exchange rate (or almost) to the dollar.
addition, the world's monetary authorities could begin to consider the price of gold target of its monetary management, keeping in range, thereby preventing an excessive monetary expansion, and preventing an excessive fluctuation of exchange rates. In practice, for example, established a range of 900-1100 dollars per ounce, when the price approaches the top of the range, central banks begin to sell it (thus draining dollars), and vice versa when the price approaches the bottom, start to buy it (thus creating dollars). A smile policy would have the advantage of not directly manipulate other currencies (as is the case today when the banks buy or sell the plants to adjust their exchange rate), and therefore minimize the risk of protectionist retaliation (no small benefit, in times of crisis). Of course, when the U.S. sell gold, the dollar may also fall against other currencies, that this policy would not prevent the impairment, but certainly it would mitigate the consequences.
Finally, people may decide to create money without limit is something completely wrong, and could then impose restrictions on banks, requiring them to create a mechanical type, just linked to gold, as happened with the gold standard. At the time of the Gold Standard the increase of the currency depended on the rate of extraction and discovery of gold, and floated slowly, except during the gold rush in California in 1849 and the Yukon in 1896. Today the supply of gold rose by 2% per year (3,000 tons), and therefore inflation infest the universities, the media and official institutions, would cry to deflation, but a rate of 4% in line with normal World GDP growth, it could hardly be accused of deflation.
the Dome does not want
course, the management of a range of gold price and a standard of monetary growth in line with what was happening with the gold standard, I am a visionary, because the grand dome inflation and a return to gold on the type outlined above, apply the fee that does not forgive, would not be possible. But there are the Chinese, who are in a great dilemma, and (perhaps) still have the autonomy to move regardless of the dome.
the dilemma Chinese
Their dilemma is as follows:
- if they want to keep the model of development based on consumption of others, in a monetary system based on the dollar, should continue to accumulate credits for power in dollars, maintaining artificially low global interest rates, supporting the dollar and imported inflation, global growth and doping exacerbating existing imbalances. One path is unsustainable in the long term.
- if it (always a monetary system based on the dollar) want to stop accumulating dollars, and even gradually reduce their holding, need to reevaluate its currency, causing the devaluation of the dark green and the rise in global interest rates, and therefore losing money, exports, and creating the economic crisis. One way impossible in the short term.
the standard yaun
One might ask But if you really have to, as a result of a possible transition from the Chinese model of development based on consumption of others, to one based on their consumption - the revaluation of the renminbi, and a corresponding devaluation of the dollar, once dropped anchor. If you switch from the "dollar standard" for the "yaun standard", ie if the international monetary system was based on yaun instead of the dollar, Chinese exporters would no longer be the central bank to bring the dollars received from their customers, yaun have them change, but customers would bring dollars to their central banks to have them change yaun to be given to Chinese exporters. And the latter - to yaun between its currency reserves - would turn to the Central Bank of China, offering their own currencies. So nothing would change for the exchange rate: the Bank of the People could choose to do fluctuate according to supply and demand, or hold them as today.
But it would be different if the yaun was also convertible into gold?
Yes, because it will revert to the gold standard, and in fact the goods were traded in gold through the yaun, who buy products from China should get gold or yaun, and deliver it directly to exporters, who can then transform into gold yaun rate convertibility. The Chinese trade surplus would act on the price of gold than other currencies (for example, would rise in dollars), as well as a deficit in the balance-eg-china-japan yaun would rise in gold and a drop in the yen.
The central point is that the Chinese central bank does not accumulate more dollars in the face of its total net surplus, but gold, that is not the debt of anyone. And the gold should not be recycled, so do not alter the interest rates and economic policy in the U.S. nor China. Like the U.S., by remaining in their overall net deficit, they would see their dwindling gold reserves, and when ended, would be forced to buy on the market, driving up the price in dollars and thus discouraging its imports. Coeval gold accumulated by the Chinese to buy more dollars, and make it less expensive imports from the USA. In short, the mechanism would push towards a rebalancing of trade balances.
how much gold
The initial situation is as follows: in the world there are about 150 000 tonnes of gold at the current price of about $ 6 trillion, of which only 30 000 held by central banks (1.2 Trilon dollars) compared to total international reserves to 7.5 trillion. So the conjunction of an increase in the amount of gold held, and its price (due to rise automatically if you put a buy it) would be sufficient to wipe out this difference of 6.3 trillion, and transform all existing foreign exchange reserves in gold paper. You may think the need for a general agreement, therefore, not feasible if the bubble does not want.
Instead the Chinese would be enough to decide for themselves to announce the gold convertibility of the yaun, acting to fulfill it, to achieve the above.
Part of China's reserves in gold today comes only to 1054 tonnes, or about $ 40 billion at the current price, equal to 2% of its foreign exchange reserves, especially of just 2.5% of China's monetary base. You can start to talk about convertibility only when this value reaches 100% the monetary base. It should, therefore, that the Chinese central bank to increase its gold reserves from 1,000 tons to 40,000. At current prices 39,000 tons of gold at 1,560 billion dollars (compared to an availability of $ 800 billion of U.S. Treasury bonds, and a total of Chinese currency reserves of 2,300 billion dollars and a GDP of 4,500 billion dollars). China so if you could also make it possible but not easy to find to buy 39,000 tonnes of gold (nearly 26% of all the gold exists, and 13 years of new production). But if China wished to buy all this gold, the price of the yellow metal would skyrocket, and already doubling (Then $ 2,200 per ounce), just 20 000 tonnes of gold to cover its monetary base, but probably enough to buy only 9 000 tonnes (3 years of new production, and 6% of all the existing gold ), and quadruple the price, coming in area $ 5,000 an ounce, and so even with 10 000 tonnes, China would become the country with more gold in the world (overtaking the U.S.) and would be able to cover its monetary base.
course, the welfare of its rural population and migrant workers would not be much, in the evidence immediately. Without the transformation from a model of growth driven by exports to one based on internal needs, the China could not solve the problems caused by excessive consumption of natural resources or environmental pollution, or too much investment (in fixed capital, plant and equipment) and insufficient domestic consumption or the problem in the financial sector (Chinese banks). But achieving these goals would be made much more possible by the creation of a monetary system in which the surpluses / deficits are regulated trade in gold (or in convertible currency in it). What mandarins come to think of it?
ps
But the U.S. could not even wanting : have 8,300 tons, 320 billion dollars at the current price, equal to about 15% of monetary base. To return to convertibility, the Fed should increase its gold reserves from 8300 to 55 000 tonnes, 47 000 tonnes at current prices correspond to 1.88 trillion dollars, which the U.S. could not find no other printing base money, and being indebted to the neck. Alternatively, however, could think of to fix the price of gold at $ 7,300 an ounce: Automatically 8300 tons in stock at Fort Knox would be equivalent to the monetary base esistente.Ma is a country in deficit, in a few years to clear, so the U.S. does not can expect to return to convertibility, unless at the same time not devalued the dollar in a way so as to reset the massive deficit, but this signficherebbe reduce the living standards of the country of over one third, and is therefore politically impossible, unless you happen to coincide with disastrous geopolitical events.
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