Gustavo Ballvé on November 9th, 2010
Food for thought, Home, Investment Themes, Portfolio Management, Signal or Noise

The Currency Wars continue. You don’t get a stronger signal that the situation is tense than when Bob Zoellick, the former US trade official and current World Bank President, says to the FT that we should reconsider gold as a currency and that Bretton Woods II is dated. The provocative yet clearly targeted article makes the US “official” position very clear ahead of the G-20 meeting. Make no mistake, this is political positioning at its finest. Reactions didn’t take long, and we highlight a few of them.

First of all, the FT’s Martin Wolf had written about the gold standard on November 1st:

Could the world go back to the gold standard? – FT – “No” is the short answer, but Mr. Wolf goes to great lengths in describing the (il)logical consequences of a gold standard nowadays.

Second, the Financial Times itself had two LEX columns on the issue (subscription required and worth the trouble):

The gold standard – It takes much too long to recognize that Mr. Zoellick wasn’t calling for a full return to the gold standard, but the arguments against the full standard do still serve as a reason why a partial, referential use of gold would still be really hard to implement, politically, policy and compliance-wise.

The price of gold – Despite gold’s “new fan”, its price is rising precisely because there’s little faith on the G20 meeting coming up with any real solution to the Currency Wars.

Other stories were dismissive of the idea of gold as even a partial/ reference for a new currency “basket”:

Zoellick’s call on the gold standard dismissed – FT – Opposition from several parties in several countries.

Barbarous relic watch – NYT – Paul Krugman says calling Bob Zoellick “the stupidest man alive” is much too kind. The deflationary effect of tightening monetary policy in the US right now would sink the ship.

The search for a new currency system – WSJ – A bit of historical context.

Trichet plays down currency-war fears – WSJ – Politician’s stance by Mr. Trichet, no doubt. Everyone is keeping their cards close to the chest ahead of the G20 meeting.

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