World Bank Chief Calls for Return to Gold Standard
08 Nov 2010

Leading economies should consider adopting a modified global gold standard to guide currency rates, World Bank President Robert Zoellick said on Monday in a surprise proposal before a potentially acrimonious G-20 summit.

Writing in the Financial Times, Zoellick called for a “Bretton Woods II” system of floating currencies as a successor to the Bretton Woods fixed-exchange rate regime that broke down in the early 1970s.

The former U.S. trade representative, who served in several Republican administrations, said such a move “is likely to need to involve the dollar, the euro, the yen, the pound and (a yuan) that move towards internationalization and then an open capital account.

“The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values,” he added.

Analysts were cautious. “Going forward that would be something that we could look towards, but it’s not going to happen within a short period of time,” said Ong Yi Ling, analyst at Phillip Futures in Singapore, adding that gold prices barely reacted to the comments.

Gold briefly hit a record high of $1,398.35 an ounce in early trade on Monday on concerns of a continued weakening dollar trend after the U.S. Federal Reserve last week acted to resume buying Treasuries.

That policy has fed acrimony among leading economies in the Group of 20 in the run-up to their summit in Seoul on Wednesday and Thursday.

China and Germany, major exporting nations, have both decried the Fed’s quantitative easing — effectively printing money — which is weakening the dollar.

Investors are pumping dollars into emerging markets in search of higher yields, and the potentially destabilizing impact of this, along with big current account deficits and surpluses as well as China’s reluctance to let the yuan appreciate faster, are set to dominate the G-20 debate.

France, which takes over the G-20 chair after this week’s summit, says it plans to work on a new international monetary system to bring greater currency stability…

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Update: At Business Insider, It’s Official: U.S. Consumers are Becoming Way More Frugal

U.S. consumers are becoming more frugal, paying down debt, and not taking on new loans, according to the New York Fed.

In a recent report, the Fed points out that the story behind consumers cutting their debts isn’t just about defaults or mortgages. It is about Americans repairing their balance sheets…

…Policy makers may need to stop thinking about how to encourage people to take on more debt, and instead, how they can help consumers pay down debt faster.

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