The New York Times Predicts China Will Adopt the Gold Standard

A new op-ed article published in the New York Times today predicts that within the next 20 years, China will adopt the gold standard.

Kwasi Kwarteng, a conservative member of British Parliament, begins the piece by recounting the history of the 1944 Bretton Woods conference that established the World Bank and the International Monetary Fund and started the dollar's dominance as the universal currency in the international monetary system. He recounts that before the dollar became the world's "reserve currency", for the majority of the 19th century-- it was the British pound that was most used for foreign trade and finance.

It was not until the outbreak of World War I that the United Kingdom decided to abandon the gold standard so that the pound could no longer be exchanged for gold. They readopted the gold standard in 1925, but by that point it was too late. Inflation required that prices and wages would have to come down 10% in order for the country to retain competitive prices on their exports.

The British could not keep up with the volume and pricing of American industrial and agricultural exports, and over the course of the next decade, the dollar replaced the pound as the currency of international trade. Kwarteng thinks this is what will happen with the U.S. and China.

America had the U.S. dollar backed by the gold standard until 1971, when in the midst of the Vietnam War, President Richard Nixon decided to leave it behind in favor of the "petrodollar". In the years since, we have seen American debt reach 17.6 trillion dollars and a continued reliance on "deficit spending" that has left us with a "fiat currency" and on the brink of a worldwide economic crisis.

"China is looking to 'rebalance' its economy" Kwarteng says and the country "could eventually — in, say, 20 years — peg the renminbi to gold, considering it preferable to the dollar as a store of value, because of its permanence and longevity."

Another Op-Ed by Keith Weiner published last month in Forbes says that America needs the gold standard "now more than ever".  He says quite plainly, "The nation cannot continue to borrow to infinity, nor can the U.S. endure zero interest much longer."

"The interest rate skyrocketed until 1981, and then went into free fall. The financial system will soon collapse, though when is hard to predict." -Keith Weiner, Forbes

It seems that as more people become aware of the unlikeliness of the U.S. ever repaying its debts, the idea of readopting the gold standard becomes more popular.