Thailand
Thailand: Time to rebuild the gold standard?
The risk-prevention function of gold has been in the global spotlight lately, with the price pushing past US$1,500 an ounce for the first time in six years on Aug 7 and holding there in recent days.
As oil prices are often inversely related to gold prices, we are confident that gold will climb to $1,800, approaching the record of $1,895 reached in September 2011. This will start to stir public opinion about the case for returning to the gold standard.
The current world financial market structure has undergone tremendous changes. At the same time, we are witnessing the US increasingly withdrawing from the multilateral world order in order to protect itself and enhance the value of its own market space.
This has led to structural adjustments in the global market. In fact, many people appear to be hoping that a radical structural adjustment does not happen or, better still, that things could return to the way they used to be.
However, “returning to the way things used to be” is not an option given the scale of the global capital surplus and severe overproduction.
The world is facing a serious economic and financial crisis, and many members of the public are losing patience with the political and bureaucratic systems of their countries. This in turn has profoundly affected the global order.
What will the outcome be? The most significant result could be the reemergence of the gold standard. The global financial system is also trying to adapt to this huge change, the core of which centres on the status of the US dollar.
DOLLAR INVINCIBILITY
The dollar is a super-currency highly supported by geopolitical factors. Its status is unbreakable, but the problem is the US wants to give up this position and move towards a freer “Trumpian future” that is becoming increasingly difficult to control.
What would a post-dollar era look like and what might replace the greenback? It is hard to imagine a modern version of the Bretton Woods Conference, which established the post-World War II global financial order.
As a result, the choice of new global currency becomes an intriguing process of trial and error.
Digital currency is one option, as some governments are making efforts to promote it. The market itself is also creating various digital currencies such as Bitcoin and Libra.
However, digital currency is still far from being widely recognised and trusted by markets, and has no support in terms of geopolitical considerations.
Secondly, we could look to regional currencies such as the euro. But the global financial order has been seriously disrupted by messy political struggles. The result is a weakening of regional currencies, which are by nature barely sustainable.
The remaining option is the gold standard.
Even after the collapse of the Bretton Woods system in 1973, doubts about the gold standard never ceased, and there were numerous sceptics within the financial community. However, many people may be ignoring the essence of the problem.
At its core the gold standard represents a global financial order. When the prevailing global financial order is facing collapse, efforts should be made to create a new one, in the form of an intergenerational renewal.
When the US led the decoupling of the dollar from gold, it was relieved the financial responsibility of pegging its currency at $35 per ounce of gold. At the same time however, this actually guaranteed the responsibility of the US in global finance. On this basis, a new financial order was formed, which allowed America to enjoy a huge development dividend.
AMERICA LOOKS INWARD
But the US no longer appears willing to exercise responsibility for the current global financial order. Attempts by President Trump to undermine the Federal Reserve and his general disregard for the existing global order have made it necessary for the world’s financial markets to find and establish a new order.
This has been the basis for a resurgence of interest in the gold standard.
The gold standard — or more accurately, a floating gold exchange standard — is the only clear solution to the “Trumpian future” of the global financial system. It means that America can go its own way and take care of its own concerns, while the rest of the world has the right to make their own choices.
In other words, this is a super-hedging and rebalancing process by the world’s financial markets to force the US to face up to its problems.
The markets would be telling America to choose between fulfilling its international financial obligations and responsibilities or give up the international status of the US dollar.
All this, of course, is based on the perspective of geo-capitalism. For the world, the gold standard means monetary autonomy. For the US, the gold standard is an option that cannot be ignored, and its existence has an extremely significant impact.
The world’s gold reserves in America will have to be repatriated, and America’s response will inevitably be doubted.
Central banks around the world would move to increase their gold reserves in preparation for the gold standard.
With this, the gold price in the global market would continue to rise, which would affect US dollar assets as well as energy prices.
Most importantly, it remains to be seen whether the US would be willing to face these huge changes, or reconfigure its position and return to the gold standard, abandoning its domestic political priorities and continuing with the past.
Chen Gong is the chief researcher with Anbound, an independent Beijing-based public policy think tank that he founded in 1993. See www.anbound.com
Source: https://www.bangkokpost.com/business/1741684/time-to-rebuild-the-gold-standard-