All that glitters: Should we return to the gold standard?

For some economists, a suggestion that the financial system should go back to the gold standard is akin to saying that the Queen should be reinstated as supreme ruler.

Indeed, even championing such an idea can result in something akin to academic excommunication, according to McGill-based professor and economist Reuven Brenner.

Still, that hasn't stopped Brenner from also championing a kind of hybrid system in which the value of the U.S. dollar would be pegged to the price of gold.

When asked why there is such an aversion to a gold-pegged system, Brenner said that it is out of fashion with current economic models of floating currencies.

But the professor believes that these current theories of open exchange rates have caused massive damage to global financial systems.

"Stupid theories survive in academia for a long time," Brenner told CTV.ca this week in a phone chat from Montreal.

In fact, Brenner said that over the past few decades, governments have wreaked havoc on the monetary system by "printing money right and left" as a way to pay for expanded social programs.

"All the Western governments, they entered over the last 40 or 50 years into commitments which now they cannot pay for," he said.

Plus, governments have been undertaking "competitive devaluations" of currencies in the hopes of giving their domestic industries an edge globally.

In short, this financial tinkering has helped create a tangled web of derivatives and stretched credit, which was partially to blame for the economic collapse in 2008.

Going back to gold would essentially restore trust in the system and "re-discipline" governments and force them to use money wisely, Brenner said.

Think of it as a kind of boot camp for big-spending politicians.

Unfortunately, Brenner believes part of the aversion to a gold-pegged system is political.

"Politicians will be able to subsidize any theory that supports their power," he said.

Read full article: CTV News, December 4, 2010