Abstract

The Monetary Role of Gold

The author proceeds from the assumption that gold has always been an important stabilizing factor in the monetary system and that the lack of any active monetary role for gold is a destabilizing factor. In ventilating his standpoint, he considers three important aspects in which the monetary role of gold is of significance. The role of gold from the viewpoint of the gold-holding countries, from that of the monetary system as a whole and from that of the International Monetary Fund. He arrives at the conclusion that the deactivation of gold not only makes a renturn to a system of fixed exchange rates impossible, but makes even attainment of more or less stable exchange rates a difficult proposition. It is demanding too much of the international adjustment process to expect it to reconcile the entire balanceof- payments deficits and surpluses with each other over the long run. Moreover, a non-convertible dollar does not enjoy the same trust as a convertible one. Consequently, the best that can be hoped for is achievement of unstable equilibrium as described by Alfred Marshall. However, that sort of balancing act demands great adroitness. If we lose our balance, the ensuing disturbances are substantial. In the second part, the author inquires into future prospects of currency gold. His answer to the question of whether gold can be reactivated for monetary applications is that it is conceivable on condition that there is a buyer of last resort. Only if such a buyer were found could gold transactions among the central banks attain an adequate volume. However, the answer to the following question of whether a buyer of last resort for gold can actually be found is that neither the International Monetary Fund, nor the USA, nor any new European monetary system would be capable of playing the part. Hence it follows, in the author’s view, that gold will not play any substantial new role in the monetary system. At the same time, however, a lot of gold will still be held in reserve and undoubtedly that gold will be used from time to time, though only as a last resort and for ad hoc transactions.