Stuck in a fiat dollar world
for some time to come
“For all its problems, the current dollar-based non-system has been far more resilient than the Bretton Woods gold-exchange standard, which never operated as White intended. And the real alternatives — a classical gold standard, in which interest rates are driven by cross-border gold flows; or a supranational currency, like Keynes advocated at Bretton Woods — are likely to remain too radical politically. We are, therefore, almost surely stuck in a fiat dollar world for some time to come.” – Benn Steil, Council on Foreign Relations
Those of you who frequent this page will recall previous references to Benn Steil’s gold advocacy. Steil, who is the director of international economics at the Council on Foreign Relations, sees central banks’ utilizing gold as a reserve asset to the offset the risks of holding national currencies as opposed to direct backing for the dollar. In this respect, his thinking is closely aligned with that of Nobel Prize winner, Robert Mundell, who also proposed the use of gold for the same purpose to the European Union at the inception of the euro.
In the essay linked below Steil provides a brief but revealing history of the transition from the late-1960s, early-1970s gold-based system to the dollar-based system under which the global economy functions today. He includes a number of interesting stories about the countries and people involved. Few people know, for example, that France dispatched a battleship in the early 1970s to New York harbor to pick up its gold deposited at the New York Federal Reserve.
In the absence of a gold standard, the best recourse for the average investor is to put one’s portfolio on the gold standard through a diversification in physical coins and bullion. We agree with Steil: “We are almost surely stuck in a fiat money world for some time to come” with all its attendant risks.
Adopt a gold-backed dollar? This is what happened the last time we tried