We think of money as an objective reality – but in fact it is just a conceptual construction of the human mind. It does not exist in nature; animals have no notion of it; even humans managed to live for countless millennia without it.
The history of money is the history of civilisation. It has been around as a medium of exchange (a much more efficient one than barter) and as a store of value since the time of the Babylonians. But the sophisticated arrangement that we call the international monetary system is a relatively recent phenomenon – and one that is in constant evolution.
The gold standard was abandoned in the 1930s; the Bretton Woods system that succeeded it was scuppered by the Nixon Shock of 1971. Thereafter, we have existed in a system of fiat or “paper” money (though most money resides in bank accounts) and floating exchange rates. This dispensation has brought about the Age of Debt – in which debt accumulates faster than capital, with dangerous consequences for the stability of the international financial system.
But now we open the latest chapter in the history of money…the rise of digital cryptocurrencies. This presents the possibility of a new global monetary architecture which could bring about the demise of the mighty US dollar as the major global reserve currency. This month I want to glimpse the future of the international monetary system medium-term – and to warn investors of the possible monetary shocks in store short-term – not least to the value of the greenback and the price of gold.
The lure of gold
Way back in history countries did not need exchange rates because their currencies existed in the form of gold and silver coins which circulated freely. So, in the first century of the Common Era, merchants in Persia would take payment in the form of coins bearing the head of the Emperor Nero on the basis of the intrinsic value of the gold itself. This system lasted right up until early-modern times. Notes were issued by banks from the Renaissance onwards on the understanding that they could be exchanged for gold coin.
By the beginning of the 19th century, most money existed not in the form of notes and coin but in the form of bank deposits – which are really just claims by an institution or an individual on a bank.
The primacy of gold ensured that there was very little price inflation across the world’s major economies, although the occasional failed harvest could cause the prices of agricultural commodities to soar from time to time. Overall, however, the price level remained extraordinarily stable. In 1932 the average level of prices in Britain was slightly below what it had been in 1795 at the outset of the Napoleonic Wars. The abandonment of the gold standard coincided with widespread inflation, of which the German Weimar Republic’s experience of hyperinflation of the early 1920s was the most extreme.
Low inflation was accompanied by low interest rates which ranged from 2.2 to 3.5 percent in Britain over most of the 19th century. This long period of monetary stability could not be maintained in the subsequent era of highly differential inflation rates and interest rates. Despite the desperate attempt of the French and others to cling to the gold standard throughout the 1920s, by the time of the Great Depression after 1939 a much more uncertain era ensued. As we know, this was the time that Fascism (a variety of nationalism and militarism, reinforced by ideological racism) took hold in much of Europe.
Flashback: The adoption of the gold standard
Today, we read a lot about the European Monetary Union (EMU) which came about in 1999 and ushered in the euro as the common currency of a bloc of 18 states. But, in a curious way, Europe enjoyed a brand of monetary union for the 50 years before 1914. It was called the gold standard.
Britain effectively adopted the gold standard in the early 18th century when in 1717 the great Sir Isaac Newton, then Master of the Royal Mint, set a conversion rate between gold and silver which favoured gold. Yet Britain only formally adopted the gold standard in 1821 with the introduction of gold sovereigns.
Most countries maintained a system of bimetallism whereby both gold and silver remained legal tender for another century. It was only in the mid-19th century that the gold standard became truly international. The apogee of gold began when the newly united German Empire adopted the gold standard in 1871. Yet, the full gold standard, with all the major economies of the world linked to gold bullion, lasted only 50 years.
The silver standard
America, for a period from the end of the 19th century to the beginning of the 20th came close to adopting the silver standard that would have favoured silver above gold. The Coinage Act, enacted by the US Congress in 1873, embraced the gold standard and de-monetised silver. This was known by mining interests and others who favoured silver as the Crime of ’73. I recently visited a former silver mining town in Colorado – Georgetown – which was one of many in the West which were effectively decimated by this measure. William Jennings Bryan (1860-1925) had the following for his slogan in the 1896 presidential election in which he ran for the Democrats and the Populists: You shall not crucify mankind upon a cross of gold.
Why fixed exchange rates?
Manufacturing nations which run surpluses and which are creditors tend to favour fixed exchange rates and “sound money” (that is, a strong currency that tends to appreciate) – just as the Germans and Chinese do today. The First World War (WWI) destroyed Britain’s trade surplus, and with it the classic gold standard. America emerged as the leading financial power. The inter-war period saw a failed attempt to return to the gold standard, hampered by the lack of international co-operation that had characterised la belle époque before the War.
The last nation to abandon the gold standard was France in 1932. For decades, before and after WWII, the French Franc remained a weak currency which was unable to compete, post-1952, with the Deutsche Mark. The French mandarinate never abandoned their hope of re-establishing French monetary dominance. As I have explained previously, President Mitterrand offered Germany a deal: a common currency in return for consent for German reunification.
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After it had fallen apart, John Maynard Keynes warned against the folly of trying to reinstate the pre-1914 monetary system in his masterful tract The Economic Consequences of the Peace (1919). He followed up with A Tract on Monetary Reform (1923). Despite these reasoned arguments, Winston Churchill, as Chancellor of the Exchequer, returned the UK to the gold standard in 1926, albeit briefly. Hence Keynes’s next great tract – The Economic Consequences of Mr Churchill.
During the decade and a half that followed, the most extreme depression in modern economic history occurred further to the stock market crash of 1929. Economic policy diverged between nations and currency rates were fixed by decree. This gave rise to vibrant currency black markets which are still prevalent in certain emerging markets.
Labour wages and migration
Under the gold standard member states defined their currencies immutably in terms of gold. But at times countries were forced to adjust interest rates to maintain the level of their currency. What enabled the system to function – as the distinguished economist Peter Oppenheimer has pointed out[i] – was flexible labour markets, which enabled money wages to be revalued (up) and devalued (down) internally. This was the factor that the architects of the European common currency – the Euro – wanted to forget.
In 19th-century Europe, the impact of negative wage adjustment in the labour markets was addressed by the mass migration of people from Europe to economies which were short of labour. Millions of European migrants made it to the USA, Canada, South Africa, Australia and New Zealand which were growing dynamically and were severely underpopulated. I recently visited Ellis Island in New York Bay where I learnt that only two percent of the countless dispossessed who arrived there in the early 20th century were returned to their homelands.
EU citizens are permitted to migrate to other EU countries; but opportunities to migrate to counties outside Europe are now, historically speaking, quite limited. British-born people are not even permitted to migrate automatically to Canada, Australia or New Zealand – English-speaking countries where HM The Queen is Head of State. (Though I hope that may change after the post-Brexit re-calibration that awaits us.) Yet much of the world today stares into the wonders of Facebook and plots their journey to Europe and America – whether they are entitled to go there or not.
Winston Churchill sent John Maynard Keynes to represent Britain at the Bretton Woods Conference (named after the town in New Hampshire where it took place) in 1944. He arrived at the conference with an audacious proposal. Keynes wanted to establish a new international currency which would replace the gold standard. All countries would have an overdraft with the World Bank-IMF denominated in a synthetic reserve currency called Bancor. This uber-currency would be valued initially in terms of gold but would not be convertible into gold.
In the event, the Americans rejected Keynes’s “funny-money” solution and imposed the dollar peg. All currencies were to be valued in terms of the US dollar; but the dollar itself would be linked to gold. The price of gold was set in stone at $35 an ounce.
Under the Bretton Woods system exchange rates were fixed domestically in terms of the US dollar, but capital could not flow freely between countries as this would have permitted speculators to exploit interest rate differentials between countries. Thus capital or exchange controls were imposed, limiting the export of both cash and bank account money. In fact these persisted long after Bretton Woods was abandoned in 1971. It is incredible to reflect that until Mrs Thatcher came to power in 1979 British people could not take more than £25 out of the country in cash for their holidays!
The Nixon Shock
The Bretton Woods system endured until the Nixon Shock of 1971 when President Richard Nixon and his Treasury Secretary, John Connally, uncoupled the dollar from the price of gold. As a result, all currencies were left “to float” in the foreign exchange markets.
For the first years after WWII the Bretton Woods system worked well. With the Marshall Plan, Japan and Europe were rebuilding from the War and required dollars to spend on American goods. Because the US owned over half the world’s official gold reserves (574 million ounces at the end of World War II) the system appeared secure.
However, as Europe and Japan recovered, the US share of the world’s economic output dropped significantly. Eventually the US balance of payments went into deficit. At the same time America’s public deficit began to balloon as a result of the Vietnam War, President Johnson’s Great Society social programme and the space race. These, plus inflation, caused the dollar to become increasingly overvalued in the 1960s.
In France, the Bretton Woods system was called “America’s exorbitant privilege”. In February 1965 President Charles de Gaulle announced his intention to exchange France’s US dollar reserves for gold at the official exchange rate. By 1966, non-US central banks held $14 billion of gold, while the United States had only $13.2 billion of gold reserves.
In May 1971, West Germany left the Bretton Woods system, unwilling to revalue the Deutsche Mark again. Its economy strengthened. The dollar started to fall against the Deutsche Mark. Other nations began to demand redemption of their dollars for gold. Switzerland redeemed $50 million in July and France $191 million. On 05 August 1971 the US Congress released a report recommending the devaluation of the dollar. On 09 August, Switzerland left the Bretton Woods system. Finally, President Richard Nixon and Treasury Secretary John Connally pulled the plug, announcing the US dollar would no longer be convertible into gold. The gold price and all currencies were left “to float”.
Post-1971: Banks profit from the FOREX market
Since 1971 exchange rates between currencies vary second by second as bank dealing rooms all around the world trade with one another quoting BID-OFFER prices. According to the Bank for International Settlements (BIS) trading in foreign exchange markets averaged $5.09 trillion per day in April 2016. This was down from $5.4 trillion in April 2013 but well up from $4.0 trillion in April 2010.
Measured by value, foreign exchange swaps were traded more than any other instrument in April 2016, at $2.4 trillion per day, followed by spot trading at $1.7 trillion. This is many times the underlying value of world trade. So, most dealing on the FOREX market is speculative. Left-inclined economists will tell you that the FOREX markets are a scam; most right-inclined economists argue that speculation creates a liquid market from which real prices emerge.
Banks have benefited from floating exchange rates which have facilitated the massive foreign exchange markets plus the need for clients to buy financial products which mitigate exchange rate risk. These in turn gave rise to more sophisticated synthetic financial products and to the rise of financial engineering. It could be said that the seeds of the Credit Crunch of 2008 were sown in 1971 when the Bretton Woods system was abandoned and the world of floating exchange rates was born.
But it should be noted that the size of the FOREX market seems now to be in decline – and that is more bad news for banks. One reason is that near-zero interest rates in Europe, North America and Japan have reduced interest rate differentials which impel foreign exchange price movements.
The mighty greenback lives on
Despite the abandonment of the dollar peg, commodities continued to be overwhelmingly priced in dollars. Soon after the end of Bretton Woods came the Arab-Israeli Yom Kippur War (1973). Thereafter, OPEC (Organisation of Petroleum Exporting Countries – dominated by Arab states) initiated an oil blockade. The US government responded by wooing the Saudis assiduously. In time, they struck a series of deals with Saudi Arabia, creating the petrodollar system. Banks built up huge deposits of offshore dollars which in turn drove the Eurodollar (offshore dollar) loan and bond markets which were rampant in the 1980s.
The US promised to protect the desert Kingdom’s vital interests in return for unhindered exports of oil. In exchange, Saudi Arabia would use its dominant position in OPEC to ensure that all oil purchases were transacted in US dollars. And until recently, virtually anyone who wanted to import oil from any country needed US dollars to pay for it. In addition to oil sales, the US dollar is used for an estimated 80 percent of all international transactions.
Conspiracy theorists claim that Saddam Hussein was taken out by America because he announced in 2000 that he did not want to sell Iraqi oil “in the currency of the enemy”. They further claim that that Libyan dictator Muamar Gaddafi was also dealt with because he planned to launch a pan-African currency backed by Libyan gold.
Personally, I think this is just conspiracy theory… though there is a mystery about what has happened to Gaddafi’s gold reserves… Nonetheless, there is a serious point to be made here: namely that the Americans have a huge stake in the dominance of the dollar. Consider that the address of the White House is 1600 Pennsylvania Avenue – and that of World Bank-IMF is 1700 Pennsylvania Avenue!
The Age of Debt
The word credit comes from the Latin credere – to believe. Debt, like the existence of money, involves an act of belief. In August, 2011 the USA lost its AAA rating for the first time. America’s most recent rating is AA+ which maps to a probability of default of about 2 percent over a 20-year timeframe. So America has a 1/50 chance of going bankrupt – but probably won’t. These probabilities of default have increased across the sovereign and corporate debt sectors in the 46 years since the Nixon Shock because the level of outstanding debt has exploded.
Most government debt and even corporate debt is now deemed permanent in the technical sense that everybody knows that it will never be repaid – it will just be refinanced going forward, and normally seamlessly. The British government has had no challenge in virtually tripling the national debt since 2010 – and the gilts market envisages that that will rise by another 25 percent in the next six years without ado. The Western world – but not the BRICs – is drowning in debt. How was that allowed to happen?
The key point is that under the gold standard and Bretton Woods, governments and banks could not just create or print money: there was a notional relationship between the stock of money in the system and the stock of gold reserves. After gold was abandoned there was no such restraint. Banks could lend and thus create money in the system with gay abandon – and that is what happened. This, of course, led to inflation.
The first great wave of inflation to hit the West followed the Nixon Shock almost immediately. By 1975 Britain was experiencing 25 percent or so inflation and by 1976 this country had to go cap in hand to the IMF for a bailout.
If we can characterise the fundamental difference between a gold-based system and that of “paper” or fiat money it is this. Gold is no one else’s liability: you can own it outright. Paper or electronic money is always a claim on someone else – whether a bank or a government – which they might not be able to meet, involving risk. As Philip Coggan[ii] writes, under fiat money, money is debt and debt is money.
Eventually, in 2008, the Western financial system became so inundated with debt that it collapsed. It had to be bailed out by governments who have effectively assumed that debt onto their national balance sheets. It is now becoming clear that we shall never recover from that catastrophe.
The future of gold in the international monetary system
For all that, it is very unlikely that gold could ever be restored as the key reference commodity in the global monetary system.
For a start, there just isn’t enough of it about. For a gold standard system to endure the amount of gold in existence should grow at the same rate as the global money supply, but that is just not feasible as gold miners could not get the precious metal out of the ground fast enough. In the late 19th century, the monetary order was able to cope because new supplies of gold came on stream from huge fields in South Africa, Australia, the Western USA and elsewhere. (Much stimulated by the overwhelmingly white male fortune hunters of the British Empire.) That is very unlikely to be repeated – unless we could mine gold in the asteroid belt (though whether that would ever be economically feasible I could not say.)
Moreover, a new gold standard would require that, in an environment of price stability, labour wages would have to adjust instead of exchange rates. As we have seen, that was addressed in the late 19th and early 20th centuries by exporting labour to the New World so that supply and demand for labour would remain in equilibrium. That is obviously no longer feasible today.
As far as I am aware, no serious economists are arguing for a return to the gold standard – even though many regard the present system as inherently flawed.
Enter the cryptocurrencies
Bitcoin was supposedly developed by a mysterious Japanese computer scientist by the name of Satoshi Nakamoto. The blockchain technology that drives bitcoin was first revealed to the world in January 2009. This was the first system to resolve the notorious double spending problem inherent in previously envisaged digital currencies. By means of a distributed blockchain database, each unit of digital currency can be spent only once per transaction.
The key idea is that every time someone pays a bitcoin to purchase an item someone else (the seller) acquires that bitcoin. The history of who paid that particular bitcoin and who acquired it is recorded on the distributed ledger for evermore. Imagine that the pound coin in your pocket contains a microchip on which is recorded every transaction in which it was ever used – plus the identity of all those that have ever owned it. Because the data associated with each bitcoin is stored on the distributed ledger, no one user can trace where each bitcoin has been (although there are people working on this like the UK-based unicorn Elliptic).
Only the master bookkeeping system can combine the various ledgers to create the final accounts. In the weird world of bitcoin, the central bookkeeping system is called the Hard Fork. New bitcoins can only be “minted” and distributed by the Hard Fork. In November 2017 the Hard Fork controlled about one billion bitcoins. Just to confuse everybody further, on 01 August this year bitcoin split into two derivative digital currencies, the classic bitcoin (BTC) and Bitcoin Cash (BCH). There even appears to be a third currency – Bitcoin Gold (BTG). So bitcoin is not even one thing.
The mysterious Satoshi Nakamoto
“Satoshi Nakamoto” created the domain name bitcoin.org in 2008. He continued to collaborate with other developers until 2010 when he handed over control of the source code to a certain Gavin Andresen, a software developer based in Amherst, Massachusetts. In 2012 Andresen founded the Bitcoin Foundation, the stated mission of which is “to standardize, protect and promote the use of bitcoin cryptographic money for the benefit of users worldwide”. In 2014 Andresen left his software development role to concentrate on his work with the Foundation.
It is not clear who “runs” bitcoin on a day-to-day basis – or even whether it needs to be managed at all since, once established, the system is decentralised and self-perpetuating. And that is precisely why governments and central bankers are so unhappy: they have been entirely usurped. Hence China banned Bitcoin exchanges on 30 September this year. Malaysia is considering doing the same. South Korea has banned all new cryptocurrency sales.
Do cryptocurrencies have intrinsic value?
Two years ago you could have bought a bitcoin for $300. A day after breaking above the $9,000 level, bitcoin on 27 November reached $9,700, boosted by growing signs that mainstream financial institutions are buying it. About 100,000 Coinbase accounts were added over the 24 November Thanksgiving holiday, while the Chicago Mercantile Exchange (CME) announced that it will list bitcoin futures in the second week of December.
It seems that the supply of new bitcoin is restricted while demand is booming. This has attracted attention from commentators who wonder if there is not some kind of market mania afoot – akin to the tulip bulb mania which raged in the Dutch Republic in the 1630s.
If bitcoin is money – a currency – it should pass two tests. It should be a medium of exchange (you can buy and sell goods and services with it) and it should remain a store of value. It surely passes the first test; but I think it fails the second – especially as most purchases of bitcoin are not to facilitate transactions but seem to be entirely speculative in nature.
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Unlike the pound coin in my wallet, bitcoin is not backed up by the state through the institutional control of a central bank. A currency that is not backed up by a central bank is not technically a currency: it has the same relationship to money as the points you accumulate on your Nectar Card when you shop at Sainsbury’s (LON:SBRY). But there is no reason why there should not be a secondary market in Nectar points: if they can be used to purchase goods they have a value. (No doubt well-informed readers will write it to inform me there is one.)
Nor can bitcoin be compared to a physical commodity such as gold. Gold has limited industrial applications but is valuable if you want to make jewellery. It still exerts a psychological lure over the human psyche. Even tulip bulbs have an intrinsic value given that you can plant them and grow flowers that will give you pleasure. Bitcoin et al have absolutely no intrinsic value whatsoever.
Devotees of digital currency will argue that conventional currency has no intrinsic value either. On the UK ten pound note there is an inscription as follows: I promise to pay the bearer on demand the sum of Ten Pounds – signed by the Chief Cashier of the Bank of England. So, in theory, I can arrive at the Old Lady of Threadneedle Street, hand over my ten pound note and demand…ten pounds. At which point they will give me an identical ten pound note – and some very funny looks.
The central bankers’ darkest secret…
In June 2016 experts in Blockchain technology met with Chair of the Federal Reserve, Janet Yellen, during an event in Washington DC to discuss ways in which the technology could improve the financial system and strengthen cybersecurity. Central banks from over 90 countries participated at the event entitled Finance in Flux: The Technological Transformation of the Financial Sector.
According to the speculator and guru, Doug Casey, the real purpose of this meeting was to discuss how state monopoly digital currencies could revolutionise the global monetary system. Doug Casey thinks that the Fed is already planning to respond to the de-dollarization of world trade by creating a parallel dollar in the form of a digital currency in the mould of bitcoin. Mr Casey has christened this proto-currency Fedcoin.
This digital currency will have no paper form but will be accessible via laptops and smartphones. The Fed will operate an electronic ledger that is continuously updated and verified in blocks of records. It will be shared on computer servers between various parties and protected cryptographically to prevent it from being modified.
Meanwhile the Chinese are busy…
In November last year rumours surfaced that the People’s Bank of China (PBOC) was researching its own sovereign digital currency. China’s central bank banned Bitcoin in 2013, saying that Bitcoin was not a real currency and could not become legal tender.
In June this year it was reported by CryptoCoins News that the PBOC is already testing its own digital currency. China’s plan, according to this source, is to integrate the digital currency into the existing banking system by allowing banks to operate digital wallets on behalf of the central bank.
For single-party state, authoritarian China, the prospect of a monopoly digital currency running on Blockchain must be compelling. Once they abolish cash, all transactions can be monitored by the state. Big Brother is watching you!
Why the Chinese want to overthrow the US dollar
Keynes’s idea of a synthetic international reserve currency never went away. In fact it was resurrected for a time in the form of Special Drawing Rights (SDRs), a composite currency issued by the World Bank. Then, before the Euro, the Europeans introduced an inter-bank proto-currency called the Écu. These were both discarded.
Now, there are reasons why a state-backed digital currency would do the job of international reserve currency most effectively. Firstly, states could set their exchange rate by reference to a digital currency that was ultimately backed by a major power (China?). Second, the FOREX markets which are transacted by banks could be by-passed completely. So, in theory, currency sales and purchases could be restricted to underlying trade transactions – such that speculation would be entirely eliminated. The banks would clearly lose a major source of revenue, but one could argue that those revenues are unnecessary transaction costs. Thirdly, commodities could be priced in the digital currency which would eliminate exchange-related price fluctuations.
But who would pioneer a digital international reserve currency?
In 1971 Secretary Connally told the world: “The dollar is our currency – but your problem”. That is precisely why the Chinese cannot wait to overturn the existing global monetary order. The Chinese, and to a lesser degree the Russians, believe that the international monetary system, such as it is, is biased in America’s favour – and works much to their disadvantage. Remember that the Russians, since 2014, have been subject to sanctions which restrict their ability to raise dollars in the capital markets.
In the short term both countries wish to push for “de-dollarisation”. That is the idea that most major commodities should be de-coupled from the US dollar and traded in other major currencies. Evidence of de-dollarisation is that Russia’s second largest financial institution VTB (MCX:VTBR) and China CITIC Bank Corporation Limited (SHA:601998) signed a massive energy deal in May 2014 bypassing the dollar and agreeing to pay each other in their own domestic currencies. Russia will supply an estimated $450 billion of natural gas from eastern Siberia to China over the next 30 years. Remember China is the world’s biggest energy market while Russia is the world’s largest energy exporter.
Secondly, China wants – in Doug Casey’s words – to castrate the dollar. Just recently it was reported that the Shanghai International Energy Exchange is introducing a crude oil futures contract denominated in Chinese yuan/renminbi. This will allow oil producers to sell their oil for yuan/renminbi. Of course, the Chinese understand that most oil producers don’t want to accumulate large reserves of Chinese currency. So this is the key point: producers will be able to efficiently convert Chinese currency into physical gold through gold exchanges in Shanghai and Hong Kong. It seems that two major oil exporters which sit on the international naughty step – Iran and Venezuela – have already signed up. Angola – another major oil exporter – started selling oil to China in yuan/renminbi in 2015.
Could this be why the Trump administration has taken such an emollient stance towards Saudi Arabia and its dynamic new leader Prince Muhammed bin Salman (MbS)? It was reported last month that Jared Kushner, Mr Trump’s son-in-law and confidant spent an entire weekend one-to-one with MbS… If Saudi Arabia started selling its oil in yuan/renminbi then that could spell the end of the dollar era. But they would pay a price as they would lose America’s guarantee of military protection against Saudi Arabia’s real enemy – Iran.
There is currently speculation that Chinese institutions will try to purchase a stake in Aramco when the estimated $25 billion IPO goes ahead next spring. That could buy them influence over the Kingdom’s oil export policies.
Once a significant portion of global oil sales are denominated in yuan/renminbi, China can then argue that the global dollar-based system is now defunct. By that point they will have a viable national cryptocurrency against which their BRICs partners (Russia, Brazil, South Africa – though maybe not India) plus other regional neighbours – the Philippines, Malaysia, Singapore, Indonesia – could fix their own exchange rates. That would betoken a new global monetary order – and a massive shift of global power.
The eventual demotion of the dollar will result in a crash in its value and high inflation domestically in America which could severely undermine the US economy. At least until it adapts – cheaper wages in America would surely bring back jobs that have been outsourced to low-wage countries. There would most probably be pressure calls to re-impose exchange controls.
This change could come about sooner than we think. The price of gold would be likely to harden and some exposure to gold would prove a useful hedge. But a new global monetary order driven by the Chinese would probably bring about a return to “normal” levels of interest rates and that could attenuate any upward pressure on the price of gold. Finally, commodity prices in the West could be adversely affected. If you believe that the Chinese currency is set for rapid appreciation it would pay to increase your portfolio’s exposure to Chinese assets and to hedge this with exposure to gold. One possible candidate for such a hedge is the Old Mutual Gold & Silver Fund.
[i] See: The Euro: The lessons of history, Peter Oppenheimer, 15 July 2015 available at: https://www.theparliamentmagazine.eu/blog/euro-lessons-history
[ii] Paper Promises – Money, Debt and the New World Order, 2011, Penguin by Philip Coggan.