It's the gold standard.

Britain fired the first shot in the 1930 s currency war, leaving the gold standard in September 1931. The US retaliated by leaving the gold standard in April 1933.

But then we got off the gold standard for individuals during the Depression and we got off the gold standard as a source of international currency coordination during Richard Nixon's presidency.

Literally. In Golden Fetters The Gold Standard and the Great Depression, published in 1992, I argued that the deflationary engine that was the gold standard was a key cause of the 1930 s depression, and that abandoning it opened the door to recovery.

The US would then be subject to tighter policy discipline. But the French never explained exactly how restoration of the gold standard might be accomplished, or how it would translate into price and economic stability, given gold markets volatility and the disastrous consequences of the gold standard not least in France in the 1930 s.

The euro shares important features with versions of the old gold standard, under which countries fixed their exchange rates relative to each other by setting the price at which domestic currency could be redeemed in gold. Today, some people espouse the view often loudly that the gold standard was synonymous with economic and financial stability.

In particular, a critical part of the gold standard was that individual national central banks set their own interest rates, with the aim of influencing the direction of capital movements. This became the central feature of the gold standard world a country that was losing gold reserves would tighten interest rates in order to attract money.

The biggest gold outflow in a generation imperiled America s ability to repay its debts abroad. Fear that the US would abandon the gold standard sent the dollar plummeting on world markets.

There are three differences between the euro and the gold standard none of which is particularly reassuring at this moment.

The EU considers that comprehensive safeguards agreements, together with Additional Protocols, constitute the current IAEA verification standard.

The EU considers that comprehensive safeguards agreements together with additional protocols constitute the current IAEA verification standard.

Unable to agree on coordinated reflationary action, governments opted to move unilaterally. One after another, they abandoned the gold standard, depreciating their currencies.

It is as if German political elites think that they are back in the era of the gold standard. But, even back then, what mattered was the amount of gold you owned not where it was actually stored.

By the middle of the nineteenth century, the world was functioning on a bi metal system based on gold and silver. But, following the British example, most major countries had shifted to a gold standard by the 1870 s.

One after another, they abandoned the gold standard, depreciating their currencies. By loosening credit in this way, they recovered, one after another, from the Great Depression.

America s role as the world s banker went unchallenged for the next 40 years ago, until President Richard Nixon decoupled the dollar from gold. Yet, even without the gold standard, America s economic might, together with the recycling of petrodollars, kept the dollar on top.

But governments and investors know this, and the result has been much higher debt to GDP ratios than would have been possible under the gold standard. The eurozone as a whole has a debt to GDP ratio of 90 , which is high by any standard.

Adhering to the gold standard during the Great Depression implied a deflationary monetary policy bias, since it required keeping interest rates relatively high to encourage investors to hold deposits in banks rather than demanding the gold that backed them. Once a country eliminated convertibility into gold, it was free to pursue monetary expansion, and deflation tended to end.

After the war, as things settled down, governments tried to return to gold, partly as a symbol of a return to normalcy. But the revived inter war gold standard ultimately fell apart, in no small part because it was impossible to rebuild public trust.

The classic case is Britain s short lived return to gold in the interwar period. The attempt to reconstitute the pre World War I model of globalization collapsed in 1931, when domestic politics forced the British government to choose domestic reflation over the gold standard.

ROME Increasingly, one hears predictions that the euro will go the way of the gold standard in the 1930 s. And, increasingly, the reasoning behind such forecasts seems persuasive.

These fanatics also believe that a return to the gold standard is inevitable as hyperinflation ensues from central banks debasement of paper money. But, given the absence of any conspiracy, falling inflation, and the inability to use gold as a currency, such arguments cannot be sustained.

Finally, for all the talk today of the discipline that the gold standard supposedly provided, countries that adhered to it regularly suspended convertibility meaning that the domestic currency could no longer be converted freely into gold. But today s Europeans have no domestic currency just the euro.

In some cases the standard has been adopted with additional requirements such as the need for timber to be debarked or for exposure periods for methyl bromide fumigations to be 24 hours, not 20 hours as in the current (March 2002) standard.

The United States did something similar in 1933, when it depreciated the dollar by 69 and abandoned the gold standard. A similar drachmatization of euro debts would be necessary and unavoidable.

Current application external service providers rarely take over non standard, non commercial systems, and, therefore, at this stage it would not be a cost effective solution.

But you had the same thing with the Gold Rush. Gold. Gold. Gold.

Under the gold standard, the dollar was convertible into gold at a fixed price of 20.67 an ounce. To stabilize the price level, the economist Irving Fisher had produced a plan for a compensated dollar, which would vary the dollar s gold value to offset rising or falling prices, in effect allowing the Fed to issue more or fewer dollars as dictated by business conditions.

Early modern Italian textile workers would find their pay in silver reduced, while their products still commanded a gold price on the international market for luxuries. This is one of the reasons why theorists such as Milton Friedman considered a bimetallic standard inherently more stable than a monometallic (gold based) regime.

The chapter will discuss the response by international and or regional standard setting mechanisms, and the current practice primarily at the international level for prevention, prosecution and punishment.

What the French under General Charles de Gaulle actually did say was that fiat monies should be jettisoned in favor of the gold standard. The US would then be subject to tighter policy discipline.

And so it turned out. Rather than deflating the economy, Nixon took America off the gold standard in 1971 and imposed wage, price, and import controls, proclaiming bluntly, I am now a Keynesian in economics.

The Gold Bubble and the Gold Bugs

But are European countries with lagging productivity willing to accept depopulation? Alternatively, are they willing to face the pain of internal devaluation, a process that failed under the gold standard and is failing under the euro?

When the US last experienced a crisis of this magnitude, in the 1930s, the Federal Reserve System similarly came under Congressional scrutiny. The result was the Glass Steagall Act of 1932 and 1933, which gave the Fed more leeway in lending, and the Gold Reserve Act of 1934, which allowed it to disregard earlier gold standard rules.

It is now increasingly evident that today s crisis has its roots in February 1971, when US President Richard Nixon decided to break the link between the dollar and gold. Until that point, America s pledge to maintain the gold standard was the basis for the global fixed exchange rate system, which was the heart of the Bretton Woods framework.

First, mounting an appropriate monetary response is easier when you have a single central bank. Under the gold standard, it still would have been possible for central banks to reflate their depressed economies had they moved together.

But the realignment of the rich, developed countries around the monetarist policies promoted by economists like Milton Friedman, which began around 1970, broke with all that. Not long after, the dollar was detached from the gold standard.

But critics of the euro should take the gold standard analogy more seriously. Like any system in the real world, it was more complex, more interesting, and also filled with more real policy possibilities than textbook caricatures suggest.

The same pattern of selling pressure on the pound sterling was repeated in the interwar era. Finally, in September 1931, Britain departed from the restored gold standard, which led to the collapse of the system as a whole.

Don t go there in the first place avoid whatever it is whether external pressure under the gold standard, asset price bubbles, or leverage and panic cycles such as that of 2003 2009 that creates the desire to deleverage.

Standard setting

Standard setting

Standard setting

Standard setting