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Dollar down, gold may shine again

business Updated: Aug 13, 2011 02:16 IST
HT Correspondent

As gold prices touched record levels as a safe investment tool after the US credit-rating downgrade, a quiet debate is gaining currency: With the dollar losing its sheen, is the world moving back to a “gold standard” system — 40 years after it was abolished?

On August 15, 1971, US president Richard Nixon suspended the system of having a fixed convertibility rate between gold and the dollar.

The gold standard existed from the 1870s to the World War in 1914. In 1944, it was decided at Bretton Woods in New Hampshire to tie the other world currencies to the dollar.

A number of countries have increased the proportion of gold in their reserves during the last few years, triggering the debate among central bankers and policy makers whether a return to “gold standard” is realistically possible.

India’s official gold holdings increased to 560 tonne after the Reserve Bank of India purchased 200 tonne of the yellow metal from the International Monetary Fund two years ago.

China, too, has strengthened its gold reserves from 600 tonne to 1,050 tonne during the last few years, while Switzerland is discussing the pros and cons of the introduction of a parallel ‘gold franc’.

Even in the US, the state of Utah has made gold the legal tender, which may be adopted by 13 other states in that country. World Bank chief Robert Zoellick also feels that perhaps time has come to “consider employing gold as an international reference point”.