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Gold, the renminbi and the multi-currency reserve system

Gold, the renminbi and the multi-currency reserve system

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Published by Gold Silver Worlds
The Official Monetary and Financial Institutions Forum (OMFIF), a global organization of central banks and sovereign wealth funds, recommends that gold be remonetized for use as international money, alongside major currencies. OMFIF gives a number of reasons for this but they boil down it to gold's historical role in establishing and maintaining confidence and stability in international monetary relations.
The Official Monetary and Financial Institutions Forum (OMFIF), a global organization of central banks and sovereign wealth funds, recommends that gold be remonetized for use as international money, alongside major currencies. OMFIF gives a number of reasons for this but they boil down it to gold's historical role in establishing and maintaining confidence and stability in international monetary relations.

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Published by: Gold Silver Worlds on Jan 13, 2013
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Gold, the renminbi and themulti-currency reserve system
 January 2013
 
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This report has been commissioned by the World Gold Council as part ofa series of reports analysing the role of gold in the International MonetarySystem.
 About the World Gold Council
The World Gold Council is the global authority on gold and its uses and the
rst source of informed opinion and advice for stakeholders and decisionmakers. We use this knowledge to develop insights into the future role thatgold can play across a number of sectors and then, in collaboration withpartners, intervene to deliver solutions and create new markets, and to
increase and sustain the demand for gold.
In the Investment sector we make gold fundamental to investment decisionmaking.For Governments and Central Banks, we are a trusted advisor to policymakers and reserve asset managers on all matters related to the gold market.In the Jewellery sector, we create new insights and ideas which increase theallure and signicance of gold when given or worn.In the Technology sector, we work to place gold at the heart of technologicaladvancement, and we are the authority on innovative uses of gold in industry
and society.
 As the global advocate for gold, we are committed to playing a key role
in the development of a responsible gold mining industry. Our members,the leading gold mining companies, regard the management of the local
environment and relationships with local communities as paramountconsiderations during the lifetime of any mine project. Together, we workto ensure the industry as a whole is striving to develop and integrate best
practice.
 All our work is informed by a deep understanding of the wide role goldhas in society and its potential both now and in the future. Throughcommercial partnerships and industry leading research, we develop aclear understanding of, and insight into, each of its key markets. Using thisinsight, we create new, relevant and innovative solutions that deliver againstclearly identied market needs. Our insight adds value to our partners andstakeholders across all sectors, and informs each of our programmes andmarket interventions.
 
Gold, the renminbi and the multi-currency reserve system
Gold has a lot goingfor it; it correlatesnegatively with the greenback, and no other reserve asset seems safe from the coming dollar shock. 
T
he world is preparing for possible twin shocks from the parlous position of the twomain reserve currencies, the dollar and the euro. As China weighs up its options
for joining in the reserve asset game, gold – the ofcial asset that plays no formalpart in the monetary system, yet has never really gone away – is poised, once again,to play a pivotal role. Many dismiss gold as a relic of the past or as an inadequatehedge against ination. But from an asset management point of view, as well as onthe basis of political analysis, gold has a lot going for it; it correlates negatively with
the greenback, and no other reserve asset seems safe from the coming dollar shock.
If the spectre of collapse continues to haunt the main reserve assets, and on the
expectation that the renminbi will take time to get into its stride, the world will rush tosafe havens. Gold may be the only one with the requisite size, clout and – dare I sayit – history to help ward off the strains that will beset the world monetary system. Itwould be wise to draw up contingency plans for such eventualities.In a sense, we have been here before. The twin centrepieces of the Bretton Woodssystem, the dollar and sterling, were both under strain as a result of economicweaknesses in the 1960s and 1970s, which marked the start of a debate that has
continued since then on the gradual development of a multi-currency reserve system.
Curiously, the main beneciary at the time was the German D-Mark, the currency thathas bequeathed the euro, presently under strain as the result of the great economicand political divergences at its very heart. But, compared with the previous transition,there are great differences. Let me list ve of them.First, the west has been assailed by the longest-running economic crisis since the1930s, hollowing out the natural ambitions of the countries that used to run the world,and weakening the natural pull of the US and European currencies.Second, Asia is rising in the economic and political rmament, reinforced by theresistance of the Asian economies to the transatlantic nancial crisis and theirgovernments’ determination to learn from their own and others’ past mistakes.
Third, China and Asia have over-saved, partly because of massive perceived
shortcomings in the International Monetary Fund’s intervention in the 1997-98 Asian
crisis. These countries have amassed huge surpluses in the form of massive monetary
reserves that have become the most potent factor behind reserve diversication intoother assets including gold. The IMF's belated recognition in December 2012 of theoccasional need for temporary capital controls demonstrates how dealing with worldimbalances in a way consistent with emerging market needs has become a new forcein international policy thinking.
Gold, the renminbi and the multi-currency reserve system
Foreword
Meghnad Desai, Chairman, OMFIF Advisory Board
Filling the vacuum
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OMFIF
Official Monetary andFinancial Institutions Forum
Ocial Monetary and FinancialInstitutions Forum
One Lyric SquareLondon W6 0NBUnited Kingdomt: +44 (0)20 3008 8415: +44 (0)20 3008 8426
Holly Topham
Production Editorholly.topham@om.org
Meghnad Desai
Chairman, Advisory Board
 John NugéeFrank ScheidigSongzuo Xiang
Deputy Chairmen, Advisory Board
Edward Longhurst-Pierce
General Manageredward.longhurst-pierce@om.org
David Marsh
Chairmandavid.marsh@om.org
Gabriel Stein
Chie Economic Advisergabriel.stein@om.org

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