The president of the World Bank, Robert Zoellick, suggested in a piece in the Financial Times on Sunday that major economies should consider a return of sorts to the gold standard.
In an opinion piece titled “The G20 must look beyond Bretton Woods II,” the World Bank leader and former U.S. Treasury official pointed out that with so much dissent among G20 members at the U.S. action in launching QE2, the next meeting in Seoul looks likely to be fraught with tension. This, he suggests, is a good reason to take another look at how currency is regarded and valued.
Pointing toward the G7 in the 1980s and the desire early on of the Reagan administration and James Baker to avoid congressional protectionism “like the one we see today,” he says that currency coordination is combined with the Uruguay Round, launching the WTO, and a push for free trade.
While the jury is still out on the end result of the 1980s actions, says Zoellick, “this package approach was significant for its combination of pro-growth reforms, open trade and exchange rate coordination.” And such cooperation, in addition to “parallel agendas of structural reforms,” is needed today, in a “Bretton Woods II” that would restrict destabilizing capital shifts from one economy to another.
One such step he suggests is the agreement of the G7 to forego currency intervention unless other nations agree. And another is the formation of a cooperative monetary system “that reflects emerging economic conditions.” This new system, he posits, “should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.