Gold Standard?

Robert Zoellick, president of the World Bank, has an interesting piece on today's Financial Times about the need for a new mechanism for currency co-ordination. I like the idea of stronger co-ordination but I was surprised to read about the potential role of gold:

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."

In this case I have to agree with the textbook view of gold as the "old money". The best argument in favor of using gold as a reference for currencies or central bank policies is to provide a nominal anchor in order to avoid inflationary policies (i.e. constraining central bank policies). The debate today about currency values/manipulation is about the relative price of different currencies and not about irresponsible monetary policy that might lead to inflation (to be more precise, some are afraid that the current monetary policy stance of many central banks will lead to high inflation but so far there is no evidence of high inflation and some countries are still facing the risk of deflation).

So I am all in favor of debating the need to come back to a system of fixed exchange rates (or even a one-currency world) but I cannot see how gold could play a role in that system.

Antonio Fatás