[Comment: IMF 2006 Agreement, Article IV, Section 2B prohibits member countries from linking their currencies to gold.
Until Christine Lagarde is forced to change the rules, a GCR with gold backed currencies is not permitted.]
Ron Paul’s IMF Question Emerges in Sharp Relief In the Era of Trump
Editorial of The New York Sun | April 18, 2017
If the International Monetary Fund does nothing else at its meeting that starts Thursday in Washington, it would be nice to see it — or someone — answer the Ron Paul question: Why do its articles of agreement actually prohibit members from linking their currencies to gold?
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Bbsrock / Via Wikipedia
POINTED QUESTION: Ron Paul, then a Republican congressman of Texas, asked why the U.S. government acquiesced in an agreement prohibiting members of the International Monetary Fund from maintaining a link between their currencies and gold. He never received an answer. Today, following the election of a president who calls the idea of a gold standard "wonderful," the question takes on a new sharpness. On Thursday, the IMF meets in Washington.
To those who didn’t know the IMF prohibits member countries from linking their currencies to the classic measure of monetary value, no need to feel abashed. One of the savviest envoys America ever sent to the IMF just told us that he himself was nonplussed to discover that fact.
It cries out for an explanation in the wake of the election of a president who, in Donald Trump, campaigned on the notion that bringing back the gold standard would be “wonderful.” Particularly because Congress is wrestling with the question of monetary reform.
Mr. Trump himself has backed off from listing communist China as a currency manipulator. But his commerce secretary, Wilbur Ross, in an interview with the London Financial Times, has just laced into the IMF’s Christine Lagarde, among others, for posturing on policy.
Ron Paul first asked the IMF gold question in 2008, in the form of an open letter to the Federal Reserve and the Treasury Department. Why did they “acquiesce” in the IMF’s “misguided” policy of prohibiting its members from linking their currencies to gold?
Dr. Paul was referring to the IMF Agreement’s Article IV, Second 2B. It permits member countries to maintain the value of their currencies in terms of the IMF’s “special drawing right or another denominator, other than gold.”
When Dr. Paul wrote his letter, that rule had been part of the Fund’s articles of agreement for a decade. It had been adopted in 1978 as part of what is known as the Second Amendment to the IMF agreement.
That Amendment followed the collapse of the very Bretton Woods monetary system for which the IMF had been created. Bretton Woods had never set up a universal gold standard, but America had undertaken to redeem dollars held by foreign governments at a 35th of an ounce of gold.
America’s default on that undertaking came in 1971, when President Nixon closed what was called the “gold window.” By the end of the decade, there was no proper definition of an American dollar in American law, and a dollar could be redeemed with only another dollar.
So America was abandoning its last link to gold. What in the world, though, was the logic of prohibiting other IMF member countries (or even America itself) from maintaining honest money linked to gold if they wanted to?
The legal department of the IMF published in 2006 an explanation of its Article IV. It called it part of a “complete departure” from the “par value system.” It asserted that a member “should not resist” an adjustment to its exchange rates, lest it threaten the system’s very stability.
“The only type of exchange arrangement that is specifically precluded under Article IV, Section 2,” the legal department said, “is one that relies on gold as the denominator.” It claimed a “principal objective” was to “reduce the role of gold in the international monetary system.”
What a farewell to virtue. Dr. Paul warned the Fed and Treasury that the IMF was “forbidding countries suffering from an erratic monetary policy” from adopting precisely “the most effective means of stabilizing their currency.”
Such a policy, he warned, “could delay a country’s recovery from an economic crisis and retard economic growth.” That could further the very economic and political instability the IMF supposedly was against. Yet Dr. Paul never received an answer.
So the question is out there — why deny a country the freedom to peg to gold? Our own theory is that the answer lies in the threat that even a small nation on the gold standard represents to the thief of inflation, in which big, highly indebted governments are invested.
When Dr. Paul wrote his letter, the value of a dollar Federal Reserve note had recently plunged to a 594th of an ounce of gold. After a dizzying further drop, it has settled at around half that value. The Great Recession consumed Barack Obama’s presidency.
Only now is the economy nearing full employment (though employment hasn’t quite returned to the 4.6% at which it averaged during the years of Bretton Woods). In any event, what an apt time to for a strategic reform of the monetary system.
Congress has been looking at establishing a proper monetary commission to study the matter. The Republican platform on which Mr. Trump stood formally endorsed it. If such a commission is established, maybe it can get the answer that no one has deigned to give Ron Paul.
Source: NY Sun