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G-20 Summit starting today, new Bretton Woods?

Today the G-20 summit in Pittsburgh will commence. Many world leaders are now convinced that the dollar should be replaced by a new monetary standard, we might be on the brink of a new Bretton Woods. In November 2008 Gordon Brown and Nicolas Sarkozy were  the first to publicly state that the current system is out-of-date and that a new world monetary standard is needed. Gordon Brown stated that a new Bretton Woods Conference should take place. Article in the Times. The IMF has posted an interesting article on its website, preparing the world for a new conference. Since many renowned economist are calling for a new Bretton Woods like conference we can only hope that today’s world leaders are brave enough to show leadership and take action.

But how should this new system look like?

For many reasons gold on its own is not likely to return to its historical importance. It is most likely that a new currency is created where it’s value is measured by a basket of the most important currency’s, oil, gold and other commodities. This idea is not that new, in fact John Maynard Keynes called for it in the Bretton Woods conference. The name of the proposed currency was the Bancor. The U.S. government was so powerfull that it could push forward their proposal of fixing the gold price to the US dollar, so this plan eventually won. This system worked till 1971, after that the costs of the Vietnam  War became so great that the Fed had to print so much money that the ratio could not longer be sustained. In the meanwhile European countries like France started demanding gold instead of the dollar, and shiploads were being pulled from Ford Knox. The US government was forced to let the fixed gold price go, and also stop the ban on gold ownership for US citizens. From 1972 till 1980 the price of gold exploded. If we correct the gold price of 1980 with inflation the price was $ 2000 an ounce in today’s dollars.

We will follow the G-20 summit with great interest and hope that the leaders will show leadership and vision. Will they finally decide that a new Bretton Woods should take place, or are they even more decisive and let Pittsburgh become the new Bretton Woods.