WASHINGTON – In 1971, US President Richard Nixon temporarily suspended the convertibility of the dollar in gold, which led to the free flotation of currencies. Economist Marc Friedrich explains why some countries now seek to return to the monetary system in which precious metal played a very important role.
Marc Friedrich believes that monetary systems based on fiduciary money, or money that is not based on the value of precious metals, “tend to fail.”
“We can see that the dollar has lost 80% of its purchasing power since 1971. With other currencies, the same has happened – the euro has lost a third of its purchasing power since its introduction,” he said.
Friedrich believes that the central banks of China, Russia and Iran, as well as those of several European countries, have significantly increased their purchases of gold because they do not trust the dollar-based system.
“Limited by nature, gold has always been money, will always remain money in the future and will also be a guarantee to restore balance through Basel III,” Friedrich said, referring to the Basel III Accords.
These agreements were reached by members of the Basel Committee on Banking Supervision (BCBS) in November 2010. Their proposals, intended to address deficiencies in financial regulation revealed by the 2008 crisis, would have to be implemented by 31 December. March 2019. However, this period was later extended until January 1, 2022.
In these agreements, the BCBS – the central bank rules regulator – reclassified the gold bars in the so-called “hard core capital”, whose number would have to increase by 6% compared to other assets.
“This clearly shows that we are preparing for new crises,” Friedrich warned, adding that he doubts the gold standard will be reintroduced into the world until January 1, 2022.
Friedrich is convinced that the current monetary system (not supported by gold) will fail in the future.
“My favorite is a commodity-based monetary system, the next monetary system will no longer rely on the use of cash, it will be completely digital,” he concluded.