|Russia backs return to Gold Standard to solve financial crisis
Russia has become the first major country to call for a partial restoration of the Gold Standard to uphold
discipline in the world financial system.
Arkady Dvorkevich, the Kremlin's chief economic adviser, said Russia would favour the inclusion of gold
bullion in the basket-weighting of a new world currency based on Special Drawing Rights issued by the
International Monetary Fund.
Chinese and Russian leaders both plan to open debate on an SDR-based reserve currency as an alternative to
the US dollar at the G20 summit in London this week, although the world may not yet be ready for such a
Mr Dvorkevich said it was "logical" that the new currency should include the rouble and the yuan, adding that
"we could also think about more effective use of gold in this system".
The Gold Standard was the anchor of world finance in the 19th Century but began breaking down during the
First World War as governments engaged in unprecedented spending. It collapsed in the 1930s when the British
Empire, the US, and France all abandoned their parities.
It was revived as part of fixed dollar system until US inflation caused by the Vietnam War and "Great Society"
social spending forced President Richard Nixon to close the gold window in 1971.
The world's fiat paper currencies have lacked any external anchor ever since. It is widely argued that the
financial excesses and extreme debt leverage of the last quarter century would have been impossible - or less
likely - under the discipline of gold.
Russia is a major gold producer with large untapped reserves of ore so it has a clear interest in promoting the
idea. The Kremlin has already instructed the central bank of gradually raise the gold share of foreign reserves
China's government has floated a variant of this idea, suggesting a currency based on 30 commodities along the
lines of the "Bancor" proposed by John Maynard Keynes in 1944.