Robert Zoellick put a few sentences about gold toward the end of a column in today’s FT that are drawing a lot of attention. I doubt very much if the World Bank President has in mind a return to the gold standard, but goldbugs and critics alike are talking as if he does.
Even if one placed overwhelming weight on the objective of price stability — enough weight to contemplate a rigid straightjacket for monetary policy — gold would not be a suitable anchor. The economy would be hostage to the vagaries of the world gold market, as it was in the 19th century: suffering inflation during periods of gold discoveries and deflation during periods of gold drought. This is well-known. I am confident Zoellick understands it. (He and I were in the same macroeconomics seminar at Swarthmore College in the 1970s.)