Monday, 08 Nov 2010 07:05 AM
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.
SUMMIT ACRIMONY?
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.
Beijing's central bank chief has suggested an alternative
monetary system based on using the International Monetary Fund's
Special Drawing Rights, a notional unit of value based on a
basket of major currencies, instead of the dollar as the sole
global reserve currency.
Zoellick was a senior official in the U.S. Treasury at the time
of the 1985 Plaza and 1987 Louvre Accords on rebalancing
currencies among major industrialized nations. He noted that
that phase of currency coordination helped launch the Uruguay
Round of world trade liberalization negotiations.
While his opinion article in the Financial Times did not
represent either U.S. or World Bank policy, it may reflect a
greater openness in Washington than in the last two decades to
some form of international currency cooperation.
"The dollar is losing its relevance especially with the
emergence of Asia economies, so a more neutral benchmark may be
required. Gold, amid all the recent uncertainty, is proving its
worth," said ANZ's senior commodity analyst Mark Pervan.
Gold retreated to around $1,390 an ounce by 1000 GMT as
speculators booked profits.
Zoellick said a new monetary system would take time to develop
and should be part of a package approach including possible
changes in IMF rules to review capital as well as current
account policies, and linking IMF monetary assessments to World
Trade Organization obligations.
The dollar rose sharply on Monday as unwinding of dollar short
positions that began with solid U.S. jobs data snowballed,
pushing down the euro to its lowest level since the Fed embarked
on fresh easing last week.
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