As the BBC noted in Mid October:
Mervyn King, the governor of the Bank of England, has tonight made a big intervention into the debate on banking reform. In a speech at Buttonwood, New York, he [listed] much more radical proposals.
"Eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not co-exist with risky assets."
Shortly thereafter Robert Zoellic of the World Bank, the mother of all central banks, wrote a leader in the Financial Times calling for a return of a gold standard.
More specifically Zoellic called for gold to be part of a basket of currencies, but was immediately shot down in the media by "eminent economists". His statement set many gold bugs hearts a flutter, and pushed gold off its recent lows.
But more was to come:
During a speech on Friday 19th November, US Federal Reserve chairman himself called for an end to the dollar standard. Ben Bernanke said:
"As currently constituted, the international monetary system has a structural flaw: It lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances."
This is the first time a senior US policymaker admitted that the system is flawed.
As we have noted many times prior to this post, there is a currency that already exists and is used, yet not fully constituted.
That is the International Monetary Fund SDR (Special Drawing Right), which at present could be considered an accounting tool rather than a legitimate currency.
The SDR has been receiving a lot of attention recently, with vast amounts being freshly issued and used by member countries.
Simply by rebalancing the basket of currencies that make up the SDR, as per the Zoellic theory, a lot of the current imbalances between creditor and debtor nations could be eliminated.
Where, if, or how gold would fit into the equation we can only speculate. However, as the IMF is a subsidiary of the US Treasury both institutions account for gold in the same way.
That is a US dollar to gold exchange rate of $48 per ounce.
