Gold Standered today.

Iwasfrozen

I was doing some research on the Fixed exchange rate. And I came across this little snippet on Wikipedia:

A fixed exchange rate is usually used to stabilize the value of a currency, vis-a-vis the currency it is pegged to. This facilitates trade and investments between the two countries, and is especially useful for small economies where external trade forms a large part of their GDP.

As you know Ireland is a small economy which depends on trade for most of it's GPD, This got me thinking would it be a good idea to pull out of the euro, pegg the punt to the Gold Standered [ £20 an ounce] making £1 IRE worth $1.75 USD. Would this improve our capability to trade during these crucial times. Or would leaving the Euro, [soon to become the worlds largest reserve fund] economic suicide ?

Saabdub

IMHO the anti-inflationary policy of the ECB is the closest thing there is to a gold standard today. The hard money policy is causing EU Members like Ireland, Italy and Germany, that depend on international exports, to be priced out of the US and UK markets while bringing down the cost of imports. The result in Ireland is diminishing export competitiveness (but the currency isn't the only reason for this) combined with thousands of shoppers crossing to NI to take advantage of cheaper goods outside the Euro zone. What I think Ireland needs is a devaluation of the currency. The devaluation of the punt in Jan. 1993 did the country no end of good.

Iwasfrozen

True, but linking our economy to the gold standered would not only allow us to set our own currency valueation but would prevent the State (ff *ahem*) from printing too much money and increasing inflation.
I think it is worth considering in the long term.

Grudaire

Iwasfrozen wrote: »

True, but linking our economy to the gold standered would not only allow us to set our own currency valueation but would prevent the State (ff *ahem*) from printing too much money and increasing inflation.
I think it is worth considering in the long term.

Well to be fair we're not allowed to that as is - I don't think the ECB would let us:D

Iwasfrozen

Well to be fair we're not allowed to that as is - I don't think the ECB would let us

You see the problem with the ECB is that it sets currency value ation to suit the larger countries in the Eurozone such as France or Germany, much like the Federal bank would set currency valueation to suit the larger states such as California or New York. While this may be good for the EU as a whole, Ireland gets the short end of the stick.
No, the ECB doesn't allow us to print our own money [which is a good thing] but also doesn't allow us to set our own currency valueation [which is a bad thing].
By pegging our currency to the Gold Standered we would be prevented from printing our own money but we would be allowed to set our own currency valueation without raising inflation. Basically it removes all the negative aspects of the Euro while keeping all the benifites.

Grudaire

Iwasfrozen wrote: »

You see the problem with the ECB is that it sets currency value ation to suit the larger countries in the Eurozone such as France or Germany, much like the Federal bank would set currency valueation to suit the larger states such as California or New York. While this may be good for the EU as a whole, Ireland gets the short end of the stick.
No, the ECB doesn't allow us to print our own money [which is a good thing] but also doesn't allow us to set our own currency valueation [which is a bad thing].
By pegging our currency to the Gold Standered we would be prevented from printing our own money but we would be allowed to set our own currency valueation without raising inflation. Basically it removes all the negative aspects of the Euro while keeping all the benifites.

Hmmm, you're forgetting the benefit of free trade (well it would exist without the Euro) to the economy. I think membership of the Eurozone has been a benefit to Ireland, and I would say that leaving the Euro would risk our foreign investment - from a perceived stability point of view.

SeanW

The number one problem with a gold standard unfortunately, is that IMF rules outlaw pegging your currecny to gold withdrawing from that organisation (or threatening to withdraw unless the rule was abolished) would be the first step.

We also don't need to pull out of the Euro because a lot of international investors (as well as Euroskeptics) are waiting to see which basket case country pulls out first. Odds are on Greece AFAIK with us not far behind.

I like the idea of a Gold Standard, but I think the way to do it is via the Euro and the ECB. You could also forget about pegging it to €20 to the ounce, since that would require a massive upward valuation of the Euro which would be difficult, if not impossible to finance, and very unsettling to the economy.

At the present time, 1 XAU = 680.57 EUR.
Thusly if the Euro were to go on the Gold Standard tomorrow, about €700 - €800 to the ounce would be the ideal rate.

Permabear

This post has been deleted.

Iwasfrozen

Hmmm, you're forgetting the benefit of free trade (well it would exist without the Euro) to the economy. I think membership of the Eurozone has been a benefit to Ireland, and I would say that leaving the Euro would risk our foreign investment - from a perceived stability point of view.

Britain doesn't have a problem with free trade in the EU, I don't see why we should have.

The number one problem with a gold standard unfortunately, is that IMF rules outlaw pegging your currecny to gold withdrawing from that organisation (or threatening to withdraw unless the rule was abolished) would be the first step.

If we treatened to leave I think they would consider dropping that law, if not we leave, being in the EU granentees us free trade with the EU, no need for IMF.

We also don't need to pull out of the Euro because a lot of international investors (as well as Euroskeptics) are waiting to see which basket case country pulls out first. Odds are on Greece AFAIK with us not far behind.

I like the idea of a Gold Standard, but I think the way to do it is via the Euro and the ECB. You could also forget about pegging it to €20 to the ounce, since that would require a massive upward valuation of the Euro which would be difficult, if not impossible to finance, and very unsettling to the economy.

Yes, one of the true major draw backs of my plan is giving Mary-Ellen Symon something to smirk about.

I like the idea of a Gold Standard, but I think the way to do it is via the Euro and the ECB. You could also forget about pegging it to €20 to the ounce, since that would require a massive upward valuation of the Euro which would be difficult, if not impossible to finance, and very unsettling to the economy.

How could we peg the Euro to Gold Standered, you do realise that Ireland at max has 1.76% seats in the european parliment, we don't have the power to peg the euro to anything let alone Gold Standered.

At the present time, 1 XAU = 680.57 EUR.
Thusly if the Euro were to go on the Gold Standard tomorrow, about €700 - €800 to the ounce would be the ideal rate.

I agree with you, to be honest the €20 mark was just trown of the top of my head, of course if we where to do this the exact price per ounce would need to be measured very carefully taking in all factors.

At this point, adopting a gold standard would be the last thing on our government's mind if it opted to pull out of the euro. Instead, it would pursue policies of "quantitative easing," effectively creating money ex nihilo in an effort to stimulate the economy out of recession.

Governments generally do not like the gold standard, because it robs them of one important method of stealing our wealth—i.e., inflation. They can reduce the value of our bank accounts simply by printing more currency, and that in turn gives them power over us that they wouldn't have if a gold standard were applied. Short of discovering huge gold reserves in the Wicklow mountains, politicians simply can't inflate the supply of gold—the best they can do is to change how much gold one unit of currency could buy.

Exactly, this plan is esentialy taking power away from the Government and giving it to the people, no one really controls the Gold Standered thus no one can really increase infaltion, Gold usually always remains fairly consistant. Which is perfect for the current economic climate.