There is simply no alternative to going back to hard and apolitical money. It is the only form of money that is compatible with capitalism. Our present fiat money system is a creation not of markets, but of politics, designed to allow the constant injection of unlimited new money into banks for the purpose of cheapening credit artificially. This creates inflationary booms and temporary illusions of prosperity, followed by busts and recessions. Forty years of fiat money has left us with a bloated financial industry, asset bubbles and excessive debt. The present system is already in its endgame. Under a proper gold standard, governments and banks have to play by the rules of the market. Hard money encourages saving, proper capital accumulation and financial prudence. It is a guarantor of property rights and individual freedom.
Detlev Schlichter is the author of Paper Money Collapse . He blogs at PaperMoneyCollapse.com
There is a strong case for a more rigorous, anti-inflationary monetary framework – once normality returns. But will binding currencies to gold achieve this? There is no reason to believe gold is inherently stable. It is a tradable commodity subject to supply and demand influences. Over time, money supply needs to expand in line with nominal GDP. During a crisis, a gold standard would not allow monetary flexibility. Quantitative easing and public debt monetisation are not long-term solutions, but have helped avert a deeper crisis (compare UK and Spanish bonds). If currencies were convertible into gold at fixed rates, the risks of speculative attacks would increase, hence the gold standard would ultimately prove as ineffective a monetary anchor as fixed exchange rate regimes like the exchange rate mechanism.
Ross Walker is senior UK economist at RBS