Would a Gold Standard Save the Dollar? With the greenback hitting 40-year lows, some argue for a return to a system where the U.S. dollar is linked to the yellow metal. November 21, 2007 David Bogoslaw These are uncertain times for the U.S. dollar as every day seems to bring fresh all-time lows for the buck against other major currencies. And an uncertain present tends to make people pine for a rose-colored past. The most extreme expression of this longing is the call by some for a return to the gold standard. The longing for the stable currency values seen under the fixed exchange rate system of earlier years is understandable as people fret over the effects of the greenback's fall: everything from a loss of purchasing power at home to higher prices for goods and services on overseas trips. The value of the dollar has been declining since 2002. The U.S. dollar index, a futures contract offered by the New York Board of Trade, which reflects the dollar's standing vs. other major currencies, has been hovering at 40-year lows since the subprime-fueled liquidity crisis this past summer. On Nov. 20, the euro climbed to a new all-time record high of $1.4815, partly in response to the Federal Reserve's more dire forecast for U.S. economic growth. Trade Partners Diversify Currencies Lately, there have been plenty of headlines about the loss of confidence in the dollar by key U.S. trade partners, which could accelerate the dollar's devaluation if any of them decide it's time for a policy change. Take some of the leading oil-producing countries in the Middle East. With the price of oil poised to break through the $100-per-barrel threshold, countries such as the United Arab Emirates and Qatar are said to be considering moving away from pricing crude in terms of dollars in favor of a basket of currencies. Kuwait exchanged its strict dollar peg for a currency basket earlier this year and there's concern that if other countries follow suit, it could reduce demand for the buck and spur other central banks to diversify their holdings, The Wall Street Journal reported on Nov. 20. The buck's weakness makes this a perfect time for a return to the gold standard, according to Nathan Lewis, author of Gold: The Once and Future Money. Lewis is advising the UAE to consider adopting a gold peg instead of a basket of currencies if it moves away from a dollar peg for its oil. <http://www.businessweek.com/investor/content/nov2007/pi20071121_848642.htm> ____________________________________________________________________________________ Be a better pen pal. Text or chat with friends inside Yahoo! Mail. See how. http://overview.mail.yahoo.com/