On 8 November 2010, World Bank president Robert Zoellick proposed “employing gold as an international reference point of market expectations about inflation, deflation and future currency values.” Less concerned about China’s undervalued currency than the IMF that has sided with the Fed, the World Bank, which enjoys a cordial relationship with China, made the ”gold standard proposal” ahead of this week’s G-20 meeting.
Given the sensitivity of the monetary policy question and the war of words that has erupted between various countries, Zoellick is proposing something that countries with reserve currencies can agree in order to engender greater international financial and trade cooperation. Zoellick added that: “This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalization and then an open capital account.”
There are a number of reasons that the World Bank proposal will not be adopted. First, creditor nations trying to develop their economies amid global economic contraction would suffer disproportionately under the World Bank’s proposal. Second, the Organization for Economic Cooperation and Development (OECD) has recently trimmed growth forecasts for 2011 and cautioned central banks about raising interest rates that would further choke off growth. In 2011 US and EU will perform by 40-50% under what the OECD estimated six months ago, and they will not reach 3% growth as was expected for 2011 until 2012.