Dollar in Shackles

Tomorrow, September 12, the U.S. Federal Reserve might make the decision to launch a new printing press. The economists remind us that the regular dollar installments, which are pouring into the economy, are still not locked in by anything. Some dream of returning to the “gold standard.” Is that possible?

The moneyed interests are considering the possibility of returning to the “gold standard” – a monetary system in which the national currency is pegged to the yellow metal, and any paper money could be exchanged for a fixed amount of gold as needed. The idea, raised in the context of the election, is strongly pushed by the representatives of the U.S. Republican Party. Recently, the question has been considered at the Asia-Pacific Economic Cooperation CEO Summit.

The possibility of moderating the activity of the printing press, among other things, attracts many at a time when the next step of this so-called program is quantitatively easing the U.S. This has become the primary instrument in treating the crisis. The point is that the financial system is injected with a fixed amount of money. However, to prevent a wild rise of inflation, they are concentrating on the accounts of national banks. Ideally, the cache is determined for the banks, so that they can credit businesses, which can increase production rates.

“But this kind of deal will lead to the growth of holes in financial assets, which does not have the desired effect,” said Alexander Abramov, the chair professor at the stock market and investment department at Moscow University’s Higher School of Economics. “For this reason, specialists are desperately searching for alternative methods to treat this sickness, particularly in history. The gold standard will certainly allow them to throw the bridle on unrestrained issuing speed of national banks. However, this way is unpromising.”

Abramov explained that the quantity of the yellow metal in the world is limited.

“Unless they return to the classic gold standard where the volume of money is equivalent to the gold reserve, we will have an extreme limiting factor for production growth,” said the expert. “After all, money can only be produced based on the measure of the availability of gold. And the volume of its mining is growing slower than the economy.”

Furthermore, the gold reserves, as the expert noted, are distributed extremely uneven. Countries with a good economic potential often have an extremely modest gold reserve.

The president of the Neokin consulting firm, Mikhail Khazin, has a similar point of view. “There is too much money in the market to control with gold at its present price,” said Khazin. “Are the Republicans ready to raise the price of gold? I think not. As a matter of fact, the words about the gold standard are their own kind of euphemism. In this manner, the Republicans are trying to instill in the community an understanding that they need to stop printing money.”

Managing Director of Investcafe Ivan Kabulayev added that a return to the gold standard, by his traditional understanding of the end of the 19th and beginning of the 20th centuries, is practically impossible.

“The world has become more global, monetary systems are more advanced, and capital transfers are freer,” stated Kabulayev.

What next? The printing press might be launched again. But this, by Mikhail Khazin’s reasoning, is already unimportant. The prevalence of the dollar on the world scene is coming to an end.

“In five to ten years – unless everything becomes critical, then maybe after two years – the world will break up into separate currency zones,” the expert predicts. “Each one will have its own currency. One central bank will make the decision to print or not to print the zone’s currency.”

But this is in the future. For now, the world depends on the dollar, and Russia is not excluded. As Alexander Abramov understands, our country holds 55 percent of its international reserves in dollars.

“The citizens and financial structures buy into this currency,” noted Abramov. “It would be good for us to have something else, but the world is structured this way; for now, there is nothing else.”