Gold, “an illusory protection for banks”

The return to gold standard in international relations was promoted by various voices from the entire world as a possible solution for overcoming the world economic crisis and especially the one from the euro area.

In an interview given to us in London, the head economist of the Standard Chatered Company declared that he agrees that the yellow metal can be an instrument for the central banks that want to diversify their currency reserves, but warns that majority of the gold reserves assure only an illusory protection.

Gerard Lyons declared that “in the future, the role of gold will be a minor one. The fact that in present many states have orientated again to gold doesn’t mean that this is the answer to the economic crisis. It is likely a reflection of the concerns related to the situation in which is situated the international monetary system and especially the dollar.”

Gerard Lyons also specified that “gold can act as a barrier in the way of devaluation of the vital fiduciary currencies and it can be an instrument for the central banks, which want to diversify their currency reserves.”

On the other hand, Gerard Lyons declares that “some major disadvantages of the gold exist. First of all, it is about the volatile price, and second of all, gold generates profit only when it is sold. In conclusion, gold as only reserve doesn’t represent an effective option.”

Referring to the possibility that gold can contribute in any way at the crisis solution from the Euro area, Gerard Lyons considers that “it doesn’t offer a solution for the European crisis. Some economists suggested that it would be better to return to the gold standard, which functioned 80 years ago, but this is a system too rigid and cyclic. This means that whenever things go wrong within an economy, the gold standard only aggravates the situation and this aspect has to be taken into account in the states from the Western Europe, because many of the adopted politics during the crisis were not the most appropriate, and the eventual use of the gold standard would increase the problems.”

Moreover, in Gerard Lyons’s opinion “gold doesn’t mean a solution. Gold itself didn’t protect countries. The fact that some states uploaded their gold reserves didn’t automatically offer immunity facing the actual problems. In fact, we could observe during this crisis that only the states that had had big reserves of currency or that adopted effective economical measures managed to keep the investitures’ trust. So, also in this case, the solution was not offered by gold.”

What will happen in the next 15- 20 years with gold and with the countries that own gold ?

Gerard Lyons considers that “gold should be viewed only as a commodity , as well as oil or as aliments and not as an economic target.”

On the other hand, Gerard Lyons estimates that “in the following years, much more countries will decide to increase their gold reserves in order to feel protected, although, as I declared earlier, it is only an illusory solution. I believe that, in time, governments from the entire world should try to impose their own currencies in the commercial transactions, which will lead to the creation of a polyvalent system, in which the monopoly is not owned anymore by a single powerful currency.”

Alexandra-Diana Mircea

MTTLC, Bucharest University