Theoretical calls and even practical attempts to return to one or another form of the gold standard have not ceased since its collapse in 1971, when US President Richard Nixon abandoned the dollar-gold link. Nevertheless, the idea is revived from time to time, either in the form of Libyan dictator Muammar Gaddafi’s plans for a gold dinar or the alternative currency of the Brics bloc.
A report released last year by OMFIF, Gold and the new world disorder, examines the historical and modern role of gold in the monetary system. The gold standard is perceived by many as a ‘golden age’ for the monetary system. But the main reasons for the demonetisation of gold are caused by the very paradigm of the modern economic system.
As Patrick Bolton and Haizhou Huang point out in their book ‘Money Capital’, which they presented at an OMFIF roundtable last year, ‘under the gold standard… monetary policy was essentially shut down’. That’s the whole point. The complex economy of the industrial era simply could not use as money an archaic instrument that was incapable of providing flexible management of cash flows. Moreover, it is difficult to imagine this in a post-industrial economy.
It is noteworthy that even optimistic ‘gold bugs’ ultimately come to the same conclusion: monetary gold (in coins and bars) can still be used, but only as a store of value and investment; just like precious stones, securities, pieces of art or cryptoassets.
As for money itself, it is in the process of destuffation – that is, the disappearance of its material forms. The whole process of chrimatogenesis occurs in the form of revolutionary evolution: revolutionary (relatively instantaneous) changes in the type of money evolve into international money.
These stages fit well into Hegel’s dialectic spiral: from the multiplicity of options for commodity exchange to the emergence of a single monopoly equivalent product (metallic money); from a variety of monetary metals (copper, silver, gold) to a single gold standard; and from the convertibility of many currencies into gold to a single currency that was exchanged for gold (US dollar).
At this stage, we can observe a transition from multiple national currencies to a single world currency. This is already a transition from quantity to quality, since the emergence of global money will be determined by the result of the struggle and unity of opposites. It will also be determined by the negation of the negation: different national currencies negate the world money of the 19th century (gold), and then the one world currency negates the different national currencies.
The world monetary system will have to come to a single world money, which is based on the commonality of credit relations in the modern world. And thus, credit money in the post-modern period will have to give way to global post-credit (information, smart, network) money.
Gold and developing economies
Perhaps it is worth recognising that gold could play, if not the role of a monetary commodity, then at least be more money-like in the economies of developing countries, the conditions of which often fully allow the existence of a gold standard. Moreover, perhaps it would be more natural for them than the current credit and monetary system, often inadequate to the level of their domestic economic development, which constantly endures relapses of galloping inflation.
Such a possibility can now be considered only theoretically due to the huge dependence of such countries on the rest of the world economy. However, increased interest in the possibility of using gold as an instrument of the credit and monetary system has been noted in a number of developing countries.
And this may apply not only to developing countries. In a hypothetical situation of the collapse of the economic system, a return to gold as a monetary commodity could actually occur, but this would in no way indicate that gold is real money even under current conditions. Moreover, one can even imagine a situation where humanity would be thrown back to an earlier stage of the development of production relations.
The global uncertainty that is creating a ‘new normal’ here and there may force humanity to turn to old, time-tested tools not only in monetary relations.
Oleksandr Sharov is Chief Researcher at the Institute of Economics and Forecasting, Ukraine. He was previously a Deputy Governor of the National Bank of Ukraine and Chief Executive Officer of the National Security Depository of Ukraine.
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