The Republican party is reaching into both the past and Ron Paul’s playbook, as party officials are considering calling for a commission to study returning to the gold standard in their platform.
The gold standard, which was last used in the United States in 1971, would set a fixed value for American dollars based on a set amount of gold. The issue of returning to the gold standard has become popular in recent years, as presidential candidate and Texas Rep. Ron Paul has supported going back to a gold standard, and with Utah passing a law last year that makes gold legal tender in the state.
Here are five things you should know about the GOP’s potential push to return to the gold standard.
Gold prices would skyrocket
As of Friday, gold prices per ounce ranged between a high of $1,672.80 per ounce and a low of $1,662.60 per ounce, with a final bid of $1,669.80 per ounce. Generally speaking, the price of gold per ounce has been steadily increasing over the five years, and while there are always upturns and downturns in the market, the long-term prognosis seems good for gold. A return to the gold standard would have drastic ramifications for the gold market, though. In order to properly back American dollars with gold, the price of gold per ounce would shoot up to $10,000 per ounce, a nearly ten-fold increase on current prices.
U.S. dollars would no longer reign supreme
The increase in value of the dollar that would come from a move to the gold standard would almost certainly remove American dollars from their status as a nearly universal currency. According to research firm Capital Economics, “[i]t is hard to conceive of the circumstances under which no one would want to hold any dollars.” Much of the United States’ global power comes from the fact that its currency is so widely used and trusted, so any move that would damage that status would seem unwise.
The end result would likely be a trade war
The gold standard has vanished not just from the United States economy, but from the economies of the rest of the world. While several countries, the United States included, hold significant gold reserves, the gold standard itself is not practiced by any major world economy. The side effects of one of the world’s largest economies going back to the gold standard — the skyrocketing gold prices and diminishing use of American dollars as a universal currency — will not be appreciated by U.S. trading partners.
Reagan also looked into returning to the gold standard
In 1981, ten years after Nixon took the United States off of the gold standard, Ronald Reagan created a gold commission to look into a return to the gold standard. Ultimately, the commission supported staying off of the gold standard, saying that “restoring the gold standard does not appear to be a fruitful method for dealing with the continuing problem of inflation.”
The United States holds a lot of gold in reserve
The U.S. currently has about 262 million ounces (or 8187.5 tons) of gold in reserve. Only the European Union has more gold in reserve, and that, of course, consists of 27 countries.
– Benjamin Nanamaker, InvestorPlace Money & Politics Editor
The opinions contained in this column are solely those of the writer.
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