World needs to pre­pare for re­turn to gold stan­dard as Wash­ing­ton dis­rupts fi­nan­cial or­der

Global Times US Edition - - BIZCOMMENT - Page Ed­i­tor: [email protected]­al­times.com.cn

The safe-haven prop­erty of gold has fully man­i­fested in re­cent weeks. Spot gold hit $1,535.11 an ounce on Au­gust 13, the high­est level since 2013.

I be­lieve the gold price could reach as high as $1,800 an ounce in the fu­ture, and in the mean­time, there will be in­creas­ing dis­cus­sions about the world’s re­turn to the gold stan­dard. The global mar­ket struc­ture has been un­der­go­ing tremen­dous changes these days. The US has been pulling it­self out of the mul­ti­lat­eral arena for the pur­poses of pro­tect­ing and en­hanc­ing the value of its own mar­ket space. As a re­sult, signs of struc­tural ad­just­ments in the world mar­ket have be­come in­creas­ingly ev­i­dent, but are still far from rais­ing the gen­eral at­ten­tion of the global fi­nan­cial com­mu­nity. In fact, many peo­ple still hope that such struc­tural ad­just­ments won’t hap­pen, so the mar­ket can go back to the old days.

Yet, it’s im­pos­si­ble to go back to the past be­cause the struc­tural ad­just­ments are based on global cap­i­tal sur­plus and se­vere over­ca­pac­ity, which could cause se­ri­ous world eco­nomic and fi­nan­cial crises. So what would be the out­come? The most sig­nif­i­cant change is a re­turn to the gold stan­dard. As cap­i­tal sur­plus and over­ca­pac­ity have ex­erted great pres­sure on the world mar­ket space, the world fi­nan­cial sys­tem is also try­ing to adapt to the huge change which is cen­tered on the sta­tus of the dol­lar. From the per­spec­tive of the global fi­nan­cial sys­tem, the dol­lar is a su­per cur­rency that has a strong back­ing of global geopol­i­tics.

The sta­tus of the su­per cur­rency is sup­posed to be un­shak­able, but the prob­lem is that the US it­self wants to give up this sta­tus and pur­sue a fu­ture char­ac­ter­ized by US Pres­i­dent Don­ald

Trump’s freestyle, thereby leav­ing the world mar­ket in un­cer­tainty.

What will “post-dol­lar era” cur­ren­cies look like? What cur­rency can re­place the sta­tus of the dol­lar?

In fact, this will be a process of con­tin­u­ous tri­als. It would be hard for the Bret­ton Woods Con­fer­ence to suc­ceed in the cur­rent era, so the new su­per cur­rency has to be se­lected through ex­ten­sive ex­per­i­men­ta­tion.

First of all, dig­i­tal cur­ren­cies. Gov­ern­ments in var­i­ous coun­tries are mak­ing ef­forts in this re­gard, and mar­ket forces have also cul­ti­vated var­i­ous dig­i­tal cur­ren­cies like Bit­coin and Li­bra. But they are far from be­ing uni­ver­sally rec­og­nized and trusted by the global mar­kets, and they are also far from win­ning the sup­port of ma­jor economies.

Sec­ond, re­gional cur­ren­cies in­clud­ing the euro. Politi­cians around the world ac­tu­ally missed many op­por­tu­ni­ties af­ter World War II, be­cause world pol­i­tics se­ri­ously dis­rupted global fi­nan­cial or­der, but no

one would ad­mit it. The re­sult is the weak­en­ing sta­tus of re­gional cur­ren­cies, like the euro.

Then what’s left is the gold stan­dard. Af­ter the col­lapse of the Bret­ton Woods Sys­tem, the ques­tion­ing of the gold stan­dard has never stopped. The gold stan­dard essen­tially rep­re­sents a world fi­nan­cial or­der. When an old fi­nan­cial or­der faces col­lapse, it is nec­es­sary to cre­ate a new fi­nan­cial or­der. When the US de­cou­pled the value of the dol­lar from gold, it ac­tu­ally com­mit­ted to take on the re­spon­si­bil­ity of world fi­nance, based on which a new fi­nan­cial or­der was formed. It is this fi­nan­cial or­der that has al­lowed the US to en­joy huge devel­op­ment div­i­dends. Now, the US is un­will­ing to con­tinue as­sum­ing and ful­fill­ing such re­spon­si­bil­i­ties for the cur­rent world fi­nan­cial or­der, and Trump has con­tin­u­ously in­ter­vened in the op­er­a­tion of the Fed and global fi­nan­cial mar­ket or­der. This devel­op­ment points to the ne­ces­sity of seek­ing and build­ing a new fi­nan­cial or­der, which is the fun­da­men­tal ba­sis for the re-emer­gence of the gold stan­dard in the world fi­nan­cial mar­ket. So the gold stan­dard is an ef­fort by the world mar­ket and fi­nan­cial sys­tem to bal­ance the “Trumpian fu­ture.” It means that the US can take its own path and Amer­i­cans will have the right to look af­ter them­selves, but other coun­tries around the world will also have the right to make their own choices. In other words, this will be a process of re­bal­anc­ing in the world fi­nan­cial mar­ket, forc­ing the US to face up to prob­lems. It needs to make a choice: ful­fill the obli­ga­tions and re­spon­si­bil­i­ties for in­ter­na­tional fi­nance, or aban­don the in­ter­na­tional sta­tus of the dol­lar, thus al­low­ing the dol­lar to be­come a com­mon cur­rency. These are sim­ply judg­ments and pro­jec­tions made from the per­spec­tive of geo-cap­i­tal­ism. For the US, the gold stan­dard is a choice that can­not be avoided. The ex­is­tence of the choice mat­ters a lot. Coun­tries around the world would take back their gold re­serves stored in the US, and there re­mains a big ques­tion mark over the US’ re­sponse. Cen­tral banks would in­crease their hold­ings of gold re­serves to pre­pare for the re­turn of the gold stan­dard. Gold prices will rise, and dol­lar as­sets and en­ergy prices will also be af­fected. Be­sides that, the most im­por­tant thing is whether the US is will­ing to ac­cept any big change or wants to re­turn to the old fi­nan­cial or­der and aban­don its cur­rent path. It re­mains to be seen and re­quires time and ob­ser­va­tion. The ar­ti­cle was com­piled based on a re­port by Bei­jing-based pri­vate strate­gic think tank An­bound. bi­zopin­[email protected]­al­times.com.cn

Il­lus­tra­tion: Xia Qing/gt

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