Gold Standard in Europe: Scene 1

Gold Standard

The buzz and recent suggestions of returning to the gold standard is increasing lately, with emerging economies stash gold, and the advanced world have a “gold leakage” to defend their currencies.

Taking a step back whenever to re-consider and make-up for our mistakes is never a wrong thing to do. Maybe the gold standard wasn’t so bad after all. Sure it had its drawbacks, but isn’t these drawbacks better than the current chaotic state of the economy?

The Euro’s Father, Germany’s former finance minister Oskar LaFontaine, votes for abortion of his new-born currency. This unified European currency is built upon the shoulders of all Europe. With the south crumbling under debts and deficit, we might see states taking those few steps back by diversifying their reserves, by increasing the gold share on the expense of major currencies such as the Euro and the USD. Other emerging economies, such as China, Brazil and Turkey, are heading in the same direction.

There is question here, where do they get their gold? They buy gold in tons! Who supply them? Either they buy freshly extracted gold from mining companies, or they buy from other central banks.

With the gold mining operations stumbling on their own problems, like depleted mines, unstable political and legal environments, and no new mining technologies, that only leaves buying gold from other central banks.

Under these new circumstances, and to avoid unnecessary conflicts between different nations, why not we return to the gold standard? A possible scenario suggests after a transitional period of prices skyrocketing (thanks to governments printing money for at least three decades); we will have fixed international exchange rates. No more printing money and no more extreme inflations. We would see real economic growth, and no more financial repressions.