Zimbabwe and the Gold Standard

The Reserve Bank of Zimbabwe Governor still thinks the world will move towards a Gold Standard. Practically that's impossible and the reason he gave some time back for the world to move in such a direction is lame. He lists the deficit financing of the US by sing debt as inflationary. Before I offer my thoughts on the learned Governor's statement, one thing is important to note. Time is the key. When is such inflation going to take place?

For those who follow the econoblogosphere will note that this discussion has been on going for some time and given the current economic conditions in the developed world of a liquidity trap any inflation if it ever will happen won't happen soon. Quantitative easing has been around for a very long time (about 4 years) and no sign of inflation in the US and like countries has ever happened. Some of these countries especially those in the Eurozone have actually gone back into recession. Interest rates which are a key indicator of future inflation trends are and have been at an all time low and there is no indication of them rising any time soon. Even the feared bond vigilantes are not in a position to push for an increase in interest rates.

Going back to the issue I am writing about. The Governor actually said:

"There is a need for us to begin thinking seriously and urgently about introducing a gold-backed Zimbabwe currency that will not only be stable but internationally acceptable...We need to rethink our gold-mining strategy, our gold-liberalization and marketing strategies as a country. The world needs to and will most certainly move to a gold standard and Zimbabwe must lead the way."

 

 

The gold Standard on its own doesn't work in Zimbabwe or the world over in this age. This topic is the subject of a research paper I am currently writing and I have touched on the matter in this blog. I will offer the details soon but importantly the criticisms leveled against the use of the US dollar as a reserve currency do not warrant opting for the Gold Standard. All I am saying is that the Gold Standard is worse. A brief look at my previous blog post I mentioned above will give you details of my specific views on the matter. The bottom line is that the Governor is wrong on this one.