"Are present international monetary arrangements optimal? My answer is no. There is a missing ingredient in the international monetary system. The missing ingredient is a world currency, and until such a facility is created, the existing arrangements, while likely to continue, will be, at best, second best. Restoration of the gold standard at the current dollar price of gold, however, would result in deflation if the restoration led to an increase in the demand for gold (as it undoubtedly would). Gold would again become a standard of value if and only if it were made stable in terms of currencies..."
"...Gold would today make an excellent unit of value for the world economy if the conditions for its stability still existed.
However, there is a problem with the distribution of gold. Over one
third of the stock is held by central banks and international
institutions. Another third is embedded in industry and jewelry, and the
remaining third is in speculative hoards. Any concerted movement of
gold into or out of central bank stocks- or even the expectation of such
a move-would destablize gold in terms of the commodity price level..."
"IS GOLD STABLE?
In short, whether gold is stable or not depends inter alia on the gold policies of governments. It is not enough to rely upon the recent quasi-stability of gold in real terms because gold might become destabilized by the very actions involved in returning to a gold standard. If any country returned to the gold standard today, its price stability could be upset by changes in the gold preferences of other countries.
The United States today, for example, holds about a quarter of the central bank stocks of gold, and seven European countries hold over half. If the United States unilaterally restored the gold standard, its price level could be destabilized by gold dumping in Europe; similarly, if powerful countries with low gold stocks began to accumulate them, the United States would suffer deflation.
It is conceivable that European countries, with their huge gold stocks, could re-establish gold as a vehicle for the promotion of their European currency. A gold ecu, or euror could conceivably provide an alternative route to European Monetary Union.12 But it would be a great mistake to embark on such a course unilaterally without agreement from other countries-especially the United States-about their gold policies. In short, a unilateral restoration of the gold standard by the United States or by Europe (or any country) would be an unwise policy that ignored the lessons of history and the implications of international interdependence..."
(21 have discussed the implications of a European Currency in EMUand the International Monetary System: A Transatlantic Perspective. Austrian National Bank Working Paper No. 13, July 1993.)