The world’s largest economies should consider gold as an indicator to help set foreign exchange rates, the head of the World Bank said in a proposal that threw open the acrimonious currency debate just before a summit of G-20 nations.
Writing in the Financial Times, World Bank President Robert Zoellick called for a new monetary system to replace the floating rates adopted in 1971 known as Bretton Woods II.
The proposal before the G-20 leaders’ summit in Seoul is aimed at fueling a broader debate on currencies going beyond competitive devaluation wars.
Zoellick said the new system “is likely to need to involve the dollar, the euro, the yen, the pound and yuan that moves towards internationalisation 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 said.
However, policymakers appeared cool to the idea. European Central Bank President Jean-Claude Trichet said central bankers from around the world did not discuss returning to a gold standard at a meeting of the Bank for International Settlements on Monday.
A German government official said Zoellick was correct in worrying that currency values were becoming too vulnerable to the whims of governments. But he added that it would not be practical to use modern monetary policy tools in a gold-based system.
{{/usCountry}}A German government official said Zoellick was correct in worrying that currency values were becoming too vulnerable to the whims of governments. But he added that it would not be practical to use modern monetary policy tools in a gold-based system.
{{/usCountry}}France, which takes over the G-20 chair after this summit, has said it plans to work on a new international monetary system to bring currency stability.