Tuesday, August 16, 2016

Economists are looking at the potential of adding gold as the 6th currency to the IMF SDR

As the Chinese get ready to not only become the 5th member of the SDR basket of currencies in September, they are also being given the authority to issue M SDR bonds for the first time in decades.  But among these new changes to the IMF's international currency there is another element being discussed by certain economists, and it involves placing a 6th currency into the basket.

And that currency is gold.

“So there you goto include a commodity like gold into the SDR as a six currency component could help to make the SDR, more neutral to global cycles and more representative of the shift in economic power witnessed over the last two decades. 
The idea of adding gold to the SDR was also studied by professor Catherine Schenk in 2011. According to her study to, ‘re-introduce a role for gold in the international monetary system’ would,  ‘provide a counterweight to the impact of the depreciation/appreciation of the US$’, and could, ‘reduce vulnerability to the USD exchange rate’
Professor Robert Mundell, a special advisor to the Chinese government, is also in favor of bringing gold back to the monetary system: ‘There could be a kind of Bretton Woods type of gold standard where the price of gold was fixed for central banks and they could use gold as an asset to trade within central banks. The great advantage of that was that gold is nobody’s liability and it can’t be printed. So it has a strength and confidence that people trust. So if you had not just the U.S. but the U.S. and the EU (area) tied together to each other and to gold, gold might be the intermediary and then with the other important currencies like the yen and Chinese Yuan and British pound all tied together as a kind of new SDR, that could be one way the world could move forward on a better monetary system.’  -  CD Fund