The semi-return of the gold standard

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There are the gold bugs, with their tales of impending economic apocalypse. And then there are people like Martin Murenbeeld, chief economist for Canada-based money manager DundeeWealth. “I’m just an economist who happens to like gold,” he says. “I’m not always bullish on it.”

Right now Murenbeeld is bullish on gold. He was here at TIME last week, giving me his rundown of reasons. Some of them you’ve already heard—the dollar is trending downward against the world’s other major currencies (which makes the dollar price of gold go up) and efforts by central banks around the world to fend off depression by printing money will probably lead to inflation (which also makes the price of gold go up). But Murenbeeld offered a related reason that I hadn’t heard articulated before—gold is quietly regaining some of its lost status as the world’s reserve currency.

“Gold is the one currency a central bank can’t print,” Murenbeeld explains. And as countries such as China look for something to put their reserves in other than value-losing dollars, gold is likely to be part of the mix. According to Murenbeeld, “these guys are beginning to quietly make proposals about reintroducing gold into the global monetary system.” It could come as part of the currency basket that makes up the International Monetary Fund’s Special Drawing Rights, the sort-of global currency that’s been making a comeback this year. Gold could also be part of the currency basket in which oil is priced—Murenbeeld says that it was the inclusion of gold in Robert Fisk’s headline-making story about a pending oil-pricing switch that made him take it seriously. And with the IMF looking to sell 403 tons of gold (about an eighth of its stash) to raise money, central banks with too many dollars lying around (mainly the People’s Bank of China) are likely to do some outright gold purchases.

While gold has the advantage that it can’t be produced at will like dollars (or euros or yuan), thus making it an arguably better store of value, as a global reserve currency it has the disadvantage that the supply of it grows so fitfully and unreliably. “It’s a hell of a poor way to set up a monetary system,” says Murenbeeld. That’s why economists going back to Irving Fisher and John Maynard Keynes have been partial to the idea of a global monetary standard based on a basket of commodities—taking  money creation out of the hands of governments but putting it on what would presumably be a more stable course than a system based only on gold could provide.

What exactly would it mean for Americans if the dollar were supplanted by such a gold- or commodity-based global monetary system? Over the short run it would make us poorer relative to other countries, and give the Federal Reserve less leeway in setting monetary policy. But over the long run I’m pretty sure it would leave us better off.