Why Gold Based International Trade Is A No Brainer

Via SchiffGold.com,

With the recent strikes on Iran, the United States’ role on the international stage has become a much larger topic of conversation. No one seems sure of the America that will emerge from the tension between historically serving as the world’s policeman and more recently desiring to step back. Even this step back would still be holding onto many of the most important bulwarks of international security. One of these bulwarks of strategic importance is the dollar’s role as most of the world’s exchange currency of choice. It says something about the state of fiat money in general that the dollar is valued for its stability. The fact that so many countries use the dollar to either hoard wealth or trade with other countries creates a great amount of demand for the dollar and is supposed to help American interest both privately and internationally.

The strength of the dollar is used often synonymously with American strength, however, America and most other countries would benefit with the return of the classical gold standard as the basis of international trade.

America’s primary benefit from this change would be through the increased range of strategic possibilities.

While the dollar’s rule has made buying goods easier, it has often proved to be more of a source of worry than an asset. We must act more predictably and responsibly in the eyes of the world than we would otherwise because we cannot let the dollar lose value through a loss of trust. We feel the need to promote a strong picture of the ever-diminishing dollar in order to let it maintain its reserve currency status.

All our striving to prop up the dollar could very easily damage the economy almost irreparably.

We put ourselves at risk of massive inflation if for some reason, many of the countries that use dollars for hoarding wealth or exchange currency switched to BRICS. The dollar value is not a reflection of the strength of American industry, rather it is a reflection of the world’s perception coupled with a geopolitically dominant past that no longer exists.

A smooth transition to gold pegged international transactions could protect us from this strategic pain point and potential for high inflation. While the adjustment would be difficult, once we had adopted some gold-pegged system for trading with other countries, our ability to trade would remain constant regardless of the rest of the world’s valuation of our currency.

Other countries stand to gain even more from an international gold trade system. The instability of their own currencies would no longer harm their ability to trade effectively. Governments could spend less time worrying about how their actions will be perceived by FX traders, and instead focus on creating an environment conducive to economic growth. Small countries in need of protection would no longer have to pick between the Russia and Chinese coalition or the West. They could seek neutrality with much more effectiveness as they could hoard wealth in a truly neutral manner. Holding currency is like gambling on the success of the country that issued it. 

That sort of controversial and value-based decision could be replaced with the age old and painfully simple choice to hold onto gold. Smaller countries would make a huge step towards financial independence by achieving stability of trade with no strings attached. 

Gold as the backbone of international trade would get rid of many of the market distortions that are possible through international currency. 

Gold’s universally accepted value and stability would only grow as the volume traded of it increased. Once a more stable equilibrium price for gold had been found with the new international trade system, the value of gold would primarily change only as demand for liquidity increased. This new ordering of trade would beautifully use the price system to signal to countries when they should think twice about trade or seeking wealth outside of the country. Regardless of whether gold went up or down, it would signal the true state of the world rather than the manipulated monetary mixed message from every country with a currency and agenda. 

Gold used as the primary medium of international trade would bolster industry, independence, and make the real state of the financial world much more observable. American companies would be able to trade as they wished without having to eat the tax of a falsely high-valued currency. Other countries would be freer, more financially stable, and able to disconnect themselves more convincingly from the power struggles of the rest of the world. Gold as the exchange currency of the world would cut through the noise created by financial and geopolitical engineering and allow real productivity