The world is moving step by step towards a de facto Gold Standard, without any meetings of G20 leaders to announce the idea or bless the project.


My guess is that any new Gold Standard will be sui generis, and better for it. Let gold will take its place as a third reserve currency, one that cannot be devalued, and one that holds the others to account, but not so dominant that it hitches our collective destinies to the inflationary ups ... and the deflationary downs of global mine supply. That would indeed be a return to a barbarous relic.

A third reserve currency is just what America needs. As Prof Micheal Pettis from Beijing University has argued, holding the world's reserve currency is an "exorbitant burden" that the US could do without.

The Triffin Dilemma -- advanced by the Belgian economist Robert Triffin in the 1960s -- suggests that the holder of the paramount currency faces an inherent contradiction. It must run a structural trade deficit over time to keep the system afloat, but this will undermine its own economy. The system self-destructs.

A partial Gold Standard -- created by the global market, and beholden to nobody -- is the best of all worlds. It offers a store of value (though no yield). It acts a balancing force. It is not dominant enough to smother the system.

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