A Gold Standard and Beyond

A Future View

Trust. That is the only thing that keeps the global economy and the flow of goods and services running. There is nothing backing dollars, euros, pounds or yen other than the belief of Joe Public that if he goes into a shop with a note guaranteed by a Government, he will be able to buy a loaf of bread or a litre of milk.

Money comes in many forms nowadays, notes and coins are fading from use and have been for some time. Cards are now used for everything but in their current form, they are no different to notes and coins. We believe that Visa and Mastercard have stepped in to replace the Bank of England, Federal Reserve and ECB but that is also an illusion and possibly riskier as it puts the basis of our monetary survival in the hands of commercially driven interests.

“A” Gold Standard rather than “The” Gold Standard would remove Government’s ability to control a nation’s economy by adding to or lowering money supply by use of interest rates. This is the ultimate globalization and it may sound a bit “science fiction” but would lead to a single global currency.  

What does currency value demonstrate anymore? Japan can export more to the U.S. if their currency is weak. The UK currency is weakening because the FX market is concerned that the UK economy will suffer when it leaves the EU

So, What?

The Big Mac Index

How much does a Big Mac cost in Tokyo? How much in London, Paris, New York or Beijing? Purchasing Power Parity is the true determinant of value. A Big Mac is essentially the same no matter where you go. So, there we have the new Gold Standard! A true measure of value?

Well, yes and no. There are too many variables and we remain tied to commercial valuations. Is there something more basic? Something we all can understand rely on and believe in?  

That takes us all the way back to public perception? I do not intend to express my opinion on the current U.S. administration but let’s agree that President Trump is, at best, divisive.  The dollar cannot be considered anything other than a means of transfer of value any more since it is totally debased by actions like this week’s introduction if trade tariffs. The value of the U.S. debt held by China and Japan is so large, the numbers are pointless and therefore the whole premise means nothing. What would happen if the creditors decided not to buy or allow replacement of any more debt? China buys American debt to allow them to finance the import of more and more Chinese goods. So, the means of exchange become less important as does the value of the debt.

Dealing under a Single Standard

What would the return of a Gold Standard or equivalent mean to retail FX trading?

Easier?

Doubtful.

It would almost certainly disappear as all trades would need to be settled versus gold. It is impossible to envisage as the U.S. has so much external debt that it will NEVER be able to repay it by use of anything other than useless paper money.

The only true method of exchange is barter. You exchange something you want for something I want. When, and I do truly believe that it is when, not if, the global system of exchange collapses, we will need an alternative?

Did someone mention Cryptocurrencies? Well they seem to have all the attributes necessary, but we come back to the acceptability question. But if blockchain really is the super-secure, super-efficient, methodology we all hear so much about how can we get from where we are now to where we need to be without coming under the spell of either Big-Government or Big-business?

Look at where we were ten years ago to where we will be in ten years. FIAT currency usage is declining in every possible way and the void will needed to be filled. The publicity machine is in full flow on both sides. The negatives are trying to highlight the criminal funding element as a major hurdle. The positives are saying that the authorities are running scared of losing control.

All it takes is acceptability and trust. Where have we heard that before?