[kictanet] [BusinessWeek] Would a Gold Standard Save the Dollar?

[Alex Gakuru]

Would a Gold Standard Save the Dollar?
With the greenback hitting 40-year lows, some argue
for a return to a system where the U.S. dollar is
linked to the yellow metal.
November 21, 2007
David Bogoslaw

These are uncertain times for the U.S. dollar as every
day seems to bring fresh all-time lows for the buck
against other major currencies. And an uncertain
present tends to make people pine for a rose-colored
past.

The most extreme expression of this longing is the
call by some for a return to the gold standard.

The longing for the stable currency values seen under
the fixed exchange rate system of earlier years is
understandable as people fret over the effects of the
greenback's fall: everything from a loss of purchasing
power at home to higher prices for goods and services
on overseas trips.

The value of the dollar has been declining since 2002.
The U.S. dollar index, a futures contract offered by
the New York Board of Trade, which reflects the
dollar's standing vs. other major currencies, has been
hovering at 40-year lows since the subprime-fueled
liquidity crisis this past summer. On Nov. 20, the
euro climbed to a new all-time record high of $1.4815,
partly in response to the Federal Reserve's more dire
forecast for U.S. economic growth. 

Trade Partners Diversify Currencies

Lately, there have been plenty of headlines about the
loss of confidence in the dollar by key U.S. trade
partners, which could accelerate the dollar's
devaluation if any of them decide it's time for a
policy change.

Take some of the leading oil-producing countries in
the Middle East. With the price of oil poised to break
through the $100-per-barrel threshold, countries such
as the United Arab Emirates and Qatar are said to be
considering moving away from pricing crude in terms of
dollars in favor of a basket of currencies. Kuwait
exchanged its strict dollar peg for a currency basket
earlier this year and there's concern that if other
countries follow suit, it could reduce demand for the
buck and spur other central banks to diversify their
holdings, The Wall Street Journal reported on Nov. 20.

The buck's weakness makes this a perfect time for a
return to the gold standard, according to Nathan
Lewis, author of Gold: The Once and Future Money.
Lewis is advising the UAE to consider adopting a gold
peg instead of a basket of currencies if it moves away
from a dollar peg for its oil. 

<http://www.businessweek.com/investor/content/nov2007/pi20071121_848642.htm>



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