Investing in precious metals 101

Russia advocates including gold in global currency basket

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  • Tue, Mar 31, 2009 - 11:03pm

    #1

    machinehead

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    Russia advocates including gold in global currency basket

From Ambrose Evans-Pritchard in the U.K. Telegraph

Arkady Dvorkevich, the Kremlin’s chief economic adviser, said Russia would
favour the inclusion of gold bullion in the basket-weighting of a new world
currency
based on Special Drawing Rights issued by the International
Monetary Fund.

Chinese and Russian leaders both plan to open debate on an SDR-based reserve
currency as an alternative to the US dollar at the G20 summit in London this
week, although the world may not yet be ready for such a radical proposal.

Mr Dvorkevich said it was "logical" that the new currency should
include the rouble and the yuan, adding that "we could also think about
more effective use of gold in this system".

Russia is a major gold producer with large untapped reserves of ore so it has
a clear interest in promoting the idea. The Kremlin has already instructed
the central bank of gradually raise the gold share of foreign reserves to
10pc.

http://www.telegraph.co.uk/finance/financetopics/g20-summit/5072484/Russia-backs-return-to-Gold-Standard-to-solve-financial-crisis.html

A serious conundrum in reinstituting the gold standard is the huge
devaluation of the fiat dollar since it was totally delinked from gold
in 1971. Gold is more than twenty times higher today than its last
official pegged price of 38 years ago. Relinking to gold at too low a
price could mean a harsh deflation, a la 1871-1879. On the
other hand, relinking at too high a gold price could cause serious pain
in countries which have no gold reserves.

Russia’s innovative idea to make gold 10 percent of a currency basket, and then
possibly raise its weight in the future, is a way of phasing in an
objective currency standard. The risk of getting the price badly wrong
would be greatly reduced. At the same time, gold as a monetary metal
will provide a clear indication of inflation if the fiat currency
portion of the basket continues depreciating against it.

It’s sad to witness the U.S. role as the braindead General Motors of the
world economy. Having no fresh ideas to offer, it only seeks to
preserve as much as possible of the dollar’s ‘exorbitant privilege’ as the officially-favored reserve currency.
All of the innovative monetary thinking is coming from the developing
world. But then if you examine economic history, the bright spotlight of
global economic leadership tends to shift every century or so. Our
century (the 20th) is over. As Dolly Parton used to sing, ‘Time can’t be bought back with silver and gold.’

  • Tue, Mar 31, 2009 - 11:20pm

    #2
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: Russia advocates including gold in global currency …

Thanks for the post Machinehead. 

  • Tue, Mar 31, 2009 - 11:35pm

    #3
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: Russia advocates including gold in global currency …

Does anyone but me find it interesting that Russia wants the gold standard implemented in a global currency when they have tons of gold? That could never work globally because many countries have no gold at all.

  • Wed, Apr 01, 2009 - 01:32am

    #4
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: Russia advocates including gold in global currency …

machinehead – nice dig and analysis.  Who can argue that in the last 10 years, gold has performed much better than currencies or stocks.  Gold helps insulate trading partners from counter party economic risks. 

 jerrydon10 said – "Does anyone but me find it interesting that Russia wants the gold
standard implemented in a global currency when they have tons of gold?
That could never work globally because many countries have no gold at
all."

No doubt, gold in the international basket would be a hardship for some and a boon to others.  Maybe they would push it through incrementally.

One good thing about including some gold is that nations would be pushed to import an equal amount or less, than the total amount of exports.  Nations would also be pushed to build a society of "consumers" rather than cheap workers.  Perhaps free trade would be replaced with fair trade.

Larry

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