In a series of articles on the last system based on the gold standard abandoned by the United States in 1971, I have shown that the introduction of a system based on fiat money significantly worsens the global financial structure. Due to the lack of a stable monetary standard, global indebtedness is at unprecedented historical levels, inflation in developed countries is high, and individuals and companies are facing a number of negative phenomena.
The degraded state of finances , especially in developed economies, does not mean that the government is trying to return to a stable currency. Thus, chronic problems, including recurring cycles of booms and busts , will continue to be seen frequently. They are rooted precisely in the growth of the money supply, represented by currency inflation and in the artificial lowering of interest rates by central banks.
If this is desired, there are various ways in which the world can return to stable money – gold and silver. In this analysis we will consider the proposals of three renowned economists.
Henry Hazlitt And The Course Of The New Gold Standard
Journalist and economist Henry Hazlitt (author of “Economics in a Lesson” + others) in his book, ” What You Need to Know About Inflation “, focuses on the steps that should be taken to return to the gold standard and what is the correct course to follow.
According to him, the new gold standard should be related to the market price of gold, and not to any mathematically determined rate. According to him:
The new dollar-to-gold ratio for which we must strive is one in which the convertibility of gold can always be maintained, and which by its nature will not be inflationary or deflationary—in other words, will not cause prices to rise or fall.
The Process Of Returning To The Gold Standard According To Hazlit
However, due to high inflation, governments need to test confidence in the free gold market and future benchmark to avoid shocks. According to Hazlitt, this can happen in a 6 step process:
- The authorities announce in advance their intention to return to the gold standard, and the central bank suspends all sales and purchases of gold. At the same time, a completely free gold market is allowed;
- Once the market has indicated what the exchange rate should be for the country returning to the gold standard, the government should announce when and at what value the local currency will be pegged to the precious metal. According to Hazlit, this period should not exceed one year;
- Within half a year of the return to the gold standard, anyone holding the local currency will be invited to exchange it for gold bars, but at a slightly higher gold price than the advertised rate. Hazlit recommends 0.5%. The reason – to avoid shock extraction of gold reserves;
- When this half-year is over, the country will return to the bullion gold standard. The exchange of the local currency for gold will be done at the official rate, without any other taxes or discrimination;
- A year later, the state will return to issuing gold coins.
Hazlitt’s Reason For Recommending A Return To The Gold Standard Is:
“The gold standard fully secured by coinage is desirable because bullion is the standard of the rich. A person with a lower standard of living must be just as able to defend against inflation as a wealthy person.
