Rugoz wrote:The gold standard is fucking dumb.
1) There's a reason why a currency has value, because it's accepted as a medium of exchange everywhere.
2) There's no reason for gold to have value. It's scarce, but horse shit is also scarce. Go figure.
3) The supply of gold is not guided by the needs of the economy.
The US is the global reserve currency, and it is based on debt (the ability of the Fed to lend money at interest to the Federal Government).
Before the abandonment in 1971 of the post-WW2 Bretton Woods system if international settlement, foreigners were able to exchange dollars for gold, but domestically there was already in place a debt-backed currency system, which was in place since FDR removed the US from the gold standard in 1933.
The Chinese Yuan is a currency which is apart from the Euro-American-Japanese monetary universe; the CNY value derives from its official rate of convertibility to the USD. Thus, the USD has a position vis-a-vis the CNY almost somewhat analogous to gold when gold was the world currency, although the USD, as an American institutional arrangement, is thus uniquely effected by the goings on in that country. On the other hand, the Chinese are themselves heavily invested in American debt.
The Gold Standard failed; it was flawed from the start; however, it was the backbone of arguably the first truly international monetary system. The system that replaced it is also flawed; which means the world is at an impasse. It doesn't even seem like a distant memory that people were talking about the Euro as a global reserve currency; such talk is long over now.
These days, sometimes people talk about the CNY as a future reserve currency; but how will this come to be, when under current arrangements the CNY is dependent on the value of the USD? The process is a tricky one, should it happen.
The USD, meanwhile, is propped up by the US Navy's control of international shipping lanes, which supports the Dollar's status as the global means of trade (in particular for oil). The US military is retrenching. It does not seem feasible that the current status quot in this area will persist.
These are momentous challenges, but I think that one inevitable aspect may be the emergence of more regional trading blocks.
China is the elephant in the room, and they will likely have a decisive role in shaping the future course of the international monetary system. Likely the current system will persist for some time, as it's in effect the best alternative there is, but I don't see it being perpetually sustainable. (Oh yeah, the global oil economy also has a role in this.) But it's difficult to know how things are going to go down.