(1) Statement on 8th November 2010
World Bank chief surprises with gold proposal
Investors are pumping dollars into emerging markets in search of higher yields, and the potentially destabilising impact of this, along with big current account deficits and surpluses as well as China’s reluctance to let the yuan appreciate faster, are set to dominate the G20 debate.
France, which takes over the G20 chair after this week’s summit, says it plans to work on a new international monetary system to bring greater currency stability.
French officials said Zoellick’s ideas mirrored initiatives that President Nicolas Sarkozy aimed to promote during France’s 12 months in the G20 from next week.
Beijing’s central bank chief has suggested an alternative monetary system based on using the International Monetary Fund’s Special Drawing Rights, a notional unit of value based on a basket of major currencies, instead of the dollar as the sole global reserve currency.
Zoellick was a senior official in the U.S. Treasury at the time of the 1985 Plaza and 1987 Louvre Accords on rebalancing currencies among major industrialised nations. He noted that that phase of currency coordination helped launch the Uruguay Round of world trade liberalisation negotiations.
While his opinion article in the Financial Times did not represent either U.S. or World Bank policy, it may reflect a greater openness in Washington than in the last two decades to some form of international currency cooperation.
“The dollar is losing its relevance especially with the emergence of Asia economies, so a more neutral benchmark may be required. Gold, amid all the recent uncertainty, is proving its worth,” said ANZ’s senior commodity analyst Mark Pervan.
Zoellick said a new monetary system would take time to develop and should be part of a package approach including possible changes in IMF rules to review capital as well as current account policies, and linking IMF monetary assessments to World Trade Organisation obligations.
(Reporting by Lewa Pardomuan, Nick Trevethan, Paul Taylor and Paul Carrel; Writing by Paul Taylor and Lesley Wroughton; Editing by Ruth Pitchford, Andrew Torchia, Andrew Hay)
(2) Statement on 10th November 2010
World Bank president rejects return to gold standard
Singapore – The World Bank president said Wednesday that gold had become an alternative monetary asset in an uncertain world economy, but he did not advocate a return to the gold standard.
Robert Zoellick’s remarks came after he suggested Monday that the world’s leading economies should consider gold as a reference for exchange rates in a future cooperative monetary system.
‘I don’t believe that you can return to a fixed exchange rate system, and that is the gold standard,’ Zoellick said in Singapore.
‘I’m not advocating a return to the 19th century when money supply was linked to gold,’ he said.
But policymakers should realize that ‘gold is the yellow elephant in the room,’ he said ahead of Thursday’s and Friday’s summit of the Group of 20 (G20), the world’s 20 largest economies, in Seoul.
‘Gold has become a reference point because holders of money see weak or uncertain growth prospects in all currencies other than the [Chinese] renminbi,’ Zoellick said. ‘People use gold as an alternative monetary asset … because confidence is low.’
He said the world economy was moving toward a ‘Bretton Woods III,’ a successor to the current monetary system of floating currencies established after the collapse of the fixed system linked to gold in 1971.
‘It’s better for the key governments involved to recognize it and start to figure out how they want to change the rules,’ he said.
Zoellick said a new monetary system was likely to involve the dollar, the euro, the yen, the pound and over time the renminbi as the Chinese currency moved toward internationalization.
The G20 summit was expected to focus on currency tensions and global trade imbalances after pushes by some countries to bolster their national economic performances by weakening their currencies.
In particular, China has been under fire for some time from major industrialized states for maintaining a weak currency as part of the Asian economic powerhouse’s efforts to underpin its export machine.
The World Bank president said he did not see a risk of a currency war but acknowledged the tensions in global exchange rate policies. ‘If not properly managed, these tensions risk increasing protectionism,’ he warned.