What are the arguments for and against using gold as a currency?

In gold they rush

More than 2,000 years of monetary history came to an end on August

15 1971 when Richard Nixon went on prime-time television, displacing

Bonanza on a Sunday night.

“I have directed the secretary of the Treasury to take the action

necessary to defend the dollar against speculators,” the US president

gravely announced . “I have directed secretary [John] Connally to

suspend temporarily the convertibility of the dollar into gold or other

reserve assets.”

Since that day, advocating a role for gold in the world’s monetary

system has become a quixotic cause, on a par with Esperanto, corporal

punishment and hats. But this week Robert Zoellick, the president of

the World Bank, suggested that the precious metal might be ready for

a comeback.

As part of a collection of reforms to the international financial system,

MrZoellick proposed that policymakers “should also consider employing

gold as an international reference point of market expectations about

inflation, deflation and future currency values”.

“Gold is now being viewed as an alternative monetary asset,”

MrZoellick said . But he added that he was not calling for a return to a

gold standard, like the pre-1971 system under which currency was

convertible into gold.

His intervention is well timed. Some policymakers think it is dangerous

to rely on a single reserve currency, the dollar, from an economy that

needs to borrow heavily from abroad. Amid Friday's failure of the

Group of 20 industrial and emerging nations to reach any meaningful

accord on global imbalances, France has promised as part of its G20

presidency next year to start a debate about the world's future

monetary arrangements.

Yet none of the obvious options looks immediately practical. There is

almost no appetite for a wholesale return to a fixed exchange rate

system. Possible alternative or supplementary reserve currencies have

their own problems – the eurozone has a fractured bond market and

questions about its future given the travails of Greece and Ireland,

while China’s renminbi is not freely traded.

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