World Bank chief moots return to gold standard

8th November 2010, Comments 0 comments

World Bank chief Robert Zoellick on Monday urged the world's leading economies to consider returning to a modified gold standard as fears of an upcoming currency war mount.

The bank boss promoted a system that is "likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation," in a letter published in the Financial Times.

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," the letter continued.

The US has consistently criticised China for keeping its currency, the renminbi, artificially low in order to gain advantage in the export market.

China hit back last week at America's decision to stimulate its economy by printing 600 billion dollars (430.3 billion euros) of new money, claiming it was designed to give the US a competitive edge.

"If the domestic policy is optimal policy for the US alone, but at the same time it is not an optimal policy for the world, it may bring a lot of negative impact to the world," China's central bank chief Zhou Xiaochuan said.

China is concerned that the US Federal Reserve's monetary policy will reduce the dollar's value, handing America the export edge. China urged examination of the move when the G20 leading economies meet in Seoul this week.

The gold standard was abandoned by US president Richard Nixon in 1971 as the dollar's value plummeted relative to gold.

The gold standard is believed to help guard against inflation, but does not allow for the flexible monetary policy which many economists believe is essential in counteracting economic shocks.

© 2010 AFP

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