In the first presidential debate, both candidates portrayed themselves as innovative problem-solvers pursuing creative avenues to “grow” the American economy. Interestingly, GOP nominee Mitt Romney did not mention his party’s most creative idea, laid out at the Republican National Convention in Tampa, Fla.,: creating a national monetary commission “to investigate possible ways to set a fixed value for the dollar” — an unmistakable nod toward the gold standard and gold-based monetary policy.
Many policymakers and experts on the economy in the United States and abroad have recently highlighted the benefits of gold-based monetary policy, and governments have increased their own gold holdings in recent years. China has pursued gold more aggressively than any other country. Chinese economists, financial executives and government officials have encouraged citizens to invest in gold and, it would appear, have done much to increase China’s gold reserves. Perhaps the United States should follow China’s example.
In an interview with China 2011 Economy, Zhou Qiren, Dean of Peking University’s National School of Development, said that a global system in which the values of currencies were pegged to gold would make “an excellent monetary system.” He said “if the currency of each major country is bound to gold, financial headaches would of course be reduced ... it would be impossible for [U.S. Federal Reserve Chairman Ben] Bernanke to print 600 billion USD to purchase long-term debt ... (and) the gold standard would effectively prevent each country’s government from recklessly levying ‘inflation taxes’ domestically and passing troubles to others by manipulating currency exchange internationally.”
In December 2011, Zhang Jianhua, research director of the People’s Bank of China, reportedly observed that “no asset is safe now. The only choice to hedge risks is to hold hard currency — gold.”
As financier Christopher Potter points out in a column for the Lehrman Institute’s TheGoldStandardNow.org, “China is preparing for a world beyond the inconvertible paper dollar, a world in which the renminbi, buttressed by gold, becomes the dominant reserve currency.” Potter’s article, “China’s Preparing for the End Game — Are We Paying Attention?,” points out that the Chinese government is expected to own more gold than the U.S. government in five years.
In a Business Insider report, Mamta Badkar ranks China as having the world’s fifth largest gold reserve at 1,054 tons of gold. To increase its gold reserves, China has increased gold production and imports. Potter notes that China now produces more gold than the United States. In an August article for Wealth Wire, Brittany Stepniak points out that between May 2010 and April 2011, China imported around 66 tons of gold. Potter claims in his article that China’s gold imports are increasing, with 750 tons of gold — over a quarter of the world’s total gold output —imported between September 2011 and September 2012.
Does China understand something about the value of gold in the global economy that we in the United States do not?
Last month, Deutsche Bundesbank President Jens Weidmann and researchers at the London office of Deutsche Bank characterized gold as a valuable means of exchange that would stabilize monetary systems throughout the world.
More and more experts here in the U.S. are also suggesting a rule-based monetary system and investment in gold. Many expert say the problem with today’s dollar is that it is fiat money. A fiat currency — a currency that is used as a means of exchange but has no objective value — is not protected from poor monetary policy or potential economic downturns.
On Sept. 19, Rep. Kevin Brady (R-Texas), ranking member of the Joint Economic Committee, said there is increased support for the Sound Dollar Act, a bill proposed in March that would lead the U.S. economy toward a rule-based monetary system. On Sept. 21, the House Financial Services Subcommittee on Domestic Monetary Policy and Technology questioned the Fed’s manipulation of interest rates and its distorting influence on the economy.
Financier, philanthropist, and former Reagan Gold Commissioner Lewis Lehrman told the panel that a modernized gold standard, coupled with stable exchange rates, could lead to 4 percent American economic growth in the long run. That’s far superior to the 1.6 average annual real gross domestic product growth we have experienced in the past 10 years.
So let us not sit back while China and Germany explore creative avenues to economic growth and sound money. Restoring the definition of the dollar as a fixed weight of gold could be the key to attracting more foreign investment to the United States, importing jobs and economic vibrancy to “grow” our economy. Let’s act before China takes the lead in sound monetary policy.
Frank Cannon is president of the American Principles Project. Giavana Coluccio is a policy analyst with the group.