- Gold to stay at centre stage in the world's
central banking system
PARIS: November 18, 1999 - Gold will continue to play a very significant
role in the world's central bank reserve systems for much of the next
century, said Robert Mundell, the new Nobel Economics Laureate, today.
Professor Mundell, who is the C Lowell Harris Professor of Economics
at Columbia University, was recently awarded the 1999 Nobel Prize for
Economic Science. He was speaking at a press briefing ahead of a major
conference on gold as a reserve asset which is being held in Paris by
the World Gold Council.
He said that while the US dollar was the most important reserve asset
today, the growth in total reserves of central banks around the world
would ensure that gold maintained its place.
"There are $2,000 billion of reserves in the world's monetary system
and that amount will double over the next 12 years," he said. "The
bulk of reserves today are in US dollars, but the bulk of that growth
cannot be in dollars."
Professor Mundell said a large part of the growth might be in Euros but
part of it would result from a rise in the value of gold reserves. He
said that he believed that the total physical amount of gold in the monetary
system was unlikely to change; while some central banks may sell gold
others would be purchasers.
"I think the total stock of gold in the reserve system in 12 years
will be the same as now - I do not see any huge shifts of gold out of
the system. Existing stocks may be re-distributed around the system -
I do not see the physical stocks of gold getting larger but if it maintains
its position the price of gold will have to go up."
Professor Mundell predicted that if the total amount of reserves were
to continue to grow at 6% - the rate of growth of the recent past and
if the dollar and euro exchange rates remained constant - the price of
gold could be expected to rise to around $600 an ounce by 2010. "I
do not think that is an outlandish figure. Gold is a good investment for
central bankers."
He argued that gold would certainly be a reserve asset in the next century.
"Countries will simply not risk just holding paper currencies, especially
if there is any change in the international monetary system.
"Gold provides a stabilising effect in a world of entirely flexible
currencies," he said. "The world has only had 28 years of total
paper currencies and paper currencies generate inflation."
He said that central banks have to think of the longer-term future. Although
countries had learnt from the experience of the 1970s and put in place
defences against inflation, nobody could be sure that these would be successful
in preventing a return of inflation in all circumstances.
If there were an upsurge in inflation as in the 1970s, gold would have
an important role as a hedge.
Contact: Keith Irons, Bankside Consultants,
44 171 220 7477 / 44 585 356 639 |