Standard gold: the comeback of an absurd idea Economics is a science wonderful. Any idea gone, discredited and ridiculed for decades may resurface overnight and again be considered reasonable. Are you trying to convince someone that the sun revolves around the earth or the earth is flat, that 99.5% of the population you would look like a raving lunatic. In economics, you can say just about anything, you'll always have an ear to listen.
is the case of the gold standard. John Law to Keynes, it took two centuries endless debates and déblacles repeated to end this relationship rooted deep in our culture between money and metal. Officially buried for 40 years and the collapse of the Bretton Woods institutions, the idea of a return to the gold standard has resurfaced with the Depression and the tremendous increase in gold prices in recent years. Behind this idea, a rather simple argument: "in a paper currency, our rulers can inflate the money supply as much as they want and maintain severe trade and budget deficits, a return to the gold standard would require them to pursue economic policies more stringent. " If the starting point is close to reality, the proposed solution is ... insane. Behind the image of strength and stiffness of gold lies a system we-don't-perhaps more unstable.
Quesque the gold standard?
Under a gold standard, the central bank undertakes to maintain parity between national currencies and a certain mass of gold. Eg 1 ounce of gold = 900 €. The central bank is committed to provide in exchange for coins or banknotes national a certain mass of gold. It therefore obliges the central bank to maintain large gold reserves to meet withdrawals of gold by individuals, companies or even foreign states and to intervene in markets to keep the price of gold.
There is not enough gold on earth to cover all the currency in circulation
According to the World Gold Council, world gold stocks would be 165-000t. Of this stock, 51% is captured by the jewelry and 12% for industrial uses. Gold as an investment is only 58 500t. The current price of a kilo of gold is € 31,800. The value of gold stocks as an investment is 1 800 billion euro. This is a significant amount but far short of the money circulating in the world. Nothing in the eurozone, the money supply in the strictest sense, M1 (Parts + Tickets + Deposits on current account) represents almost 4,000 billion euro Thus, even if for example the ECB s'accaparait (miraculously) all the gold in the world, she could not fully cover all the gold money circulating in the Euro Zone.
Since the introduction of banknotes and bank accounts, the gold standard has always rested on the great hypocrisy: there was never enough gold to cover all liabilities of banks plants.
A central bank can never raise enough gold to cover the monetary base
The monetary base is currency issued by the central bank. It is different from the monnei outstanding because of the money multiplier bank (or other articles about creating monéaires). The monetary base is embodied in the documents, banknotes and bank reserves held at the ECB. They represent nearly one trillion euros over 1300 billion. The ECB should hold more than two-thirds of global gold reserves in order to return to a gold currency. Suffice to say that c'eest simply impossible.
engagement imaginary
In 1965, De Gaulle decided to share some of the dollar reserves of France against gold from U.S. institutions. This slight movement was enough to bring sharply in crisis the Bretton Woods institutions. Similarly, during the Great Depression, all industrialized countries have left one to one gold standard due to national and international demands too great. In a system of paper money and bank money, a gold standard only works when hardly anyone claiming his gold. Since the withdrawals are massive, the system is in crisis.
stabilize the price of gold?
matter if reserves are not large enough, some argue that the central bank should just commit to maintain stable price of gold. In this way, the monetary institution would commit to maintain a stable monetary policy and rigorous. Some have this system so that the "Value for money" does not depreciate and preserves a real basis. However, as we have seen, the gold is mostly used for ornamental purposes and industiel. The gold price is highly dependent on supply and demand in these markets. Thus, the price of gold does not depend at all only on the monetary policy of the central bank. Impose a central bank as a priority objective of stabilizing the price of gold is absurd and dangerous policy.
Imagine that we fix to 1 ounce = 900 € parity between the euro and gold. If gold production collapses or if the demand for gold increases for any reason, the price of an ounce will tend to rise. To maintain parity, the central bank will have to sell gold on the markets. If the upward trend continues long, it can quickly deplete its reserves in gold and be forced to scale down the parity between gold and the euro (eg 1 ounce = 950 €), ie say to devalue. Gold is a global market, prices are almost uncontrollable for a central bank alone.
On the contrary, if the production explodes or if demand collapses, the price of an ounce will decrease. The central bank will have to buy gold to preserve price stability. To do this, she will have to create any part of the monetary base. If the courses have a long downward trend, the Central Bank will inject a lot of money in the economy and thus risking high inflation.
In short, the requirement of the stability of gold prices forced the Central Bank to take important decisions that may very well be in stark contrast to the interest economy. Many analysts watching carefully the reaction of monetary authorities in U.S. economic, French or brittaniques during the Depression 29. They often forget that they were bound hand and foot to a system requiring them to make decisions often absurd to preserve sacrosanct arbitrary parity between gold and currency.
The gold standard is indeed the "barbarous relic" denounced by Keynes. The central bank policy has an impact on the price of goods, services and assets as a whole. It is on this basis that policy can be judged or not rigorous.
