Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Should the UK Join the Euro?

Currencies / British Pound Dec 08, 2012 - 06:53 AM GMT

By: Jan_Skoyles

Currencies

Jan Skoyles looks at how the Euro might not be such a bad idea if it is the interim step to a return to the gold standard. Looking at a paper written by Jesus Huerta de Soto, she looks at the Austrian arguments for the UK joining the Euro, but concludes that the current path of central bank net gold investment and private citizens choosing to buy gold is more likely to be providing the first steps to the new gold standard. 


Believe it or not, despite many problems happening over the channel, there are still plenty of people who think the UK should join the Euro.

Whilst leaders of the current major political parties in the UK see no prospect of the UK joining the Euro in their political lifetime, there are many in politics who still believe it is an inevitable scenario. Conservative peer Lord Heseltine said back in April that it was likely we would join the Euro in the foreseeable, as part of our need to go through ‘Europeanisation.’ On other side of the political spectrum Labour peer Lord Mandelson said a couple of months ago that the UK could join the Euro Mark II within ten years.

For those of us tearing our hair out, not knowing which way to look as the international economy appears to self-destruct, is this the UK joining the Euro just another example of politicians not learning what’s truly going wrong?

To the contrary, looking at it from an Austrian economics perspective the UK ascending/descending (depending your view) to the Euro, might be just the type of lesson and discipline politicians and policy makers in the UK need.

The proxy for the gold standard

Back in May Jesus Huerta de Soto argued for the Euro as a ‘proxy’ for the Gold Standard and for free-market economists to support it ‘while the only alternative is a return to monetary nationalism’.

It’s common knowledge that Austrian economists believe in a return to a sound monetary system in order to facilitate social and economic progress. A country joining a single currency union that is the Euro is just one of the many ways that we could gradually move onto the gold standard. The key to remember is that whilst the Euro currency is by no means an ideal one, it does hold significant advantages over the management of other currencies such as the US Dollar.

From an Austrian perspective, joining the Euro may provide the discipline and control governments must learn in preparation for returning the gold standard.

As Ludwig von Mises wrote:

The gold standard makes the determination of money’s purchasing power independent of the changing ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard, it is its main excellence.

The arguments against the Euro are often the very same as those for the gold standard.

  • Sovereign states unable to devalue their currency
  • Control of interest rates from an outside authority
  • No lender of the last resort
  • ECB concerned with low inflation
  • Difficulties of leaving

Are Euro countries in a better position than the UK?

At present it may appear as though countries which have maintained monetary autonomy are riding this crisis better than those who don’t. Those in Greece would argue that we Brits and Americans are in a far better position than themselves. At the moment we appear to be riding the financial storm better as we are able to inject liquidity into the economy and try, desperately, to weaken our currency. However, as history shows, this is merely a temporary measure and sets us up for a bigger fall.

In a brilliant paper, published May this year, economist Jesus Huerta De Soto outlines the three reforms needed to resolve the problems currently afflicting the financial system:

  •  The 100 per-cent reserve requirement must be re-established. This reinstates the ‘essential principle’ of what is yours, is yours in regard to bank deposits and equivalents.
  •  Central banks must be abolished. Their role as lender of the last-resort becomes invalid should 100 per cent reserve requirements be enforced. Legal tender laws would also be revoked and ‘government regulations that derive from them.’
  • The return to the gold standard ‘as the only world monetary standard that would provide a money supply which public authorities could not manipulate and which could restrict and discipline the inflationary yearnings of the different economic agents’.

Huerta de Soto believes the above indicates the reforms which could be implemented in the interim before moving onto a gold standard. They would help ‘permit a more sound judgement about the different economic-policy alternatives in the real world.’ Within these reforms we can see some similarities with the Euro, hence why it could prove to be a suitable interim arrangement before moving onto the gold standard.

The major argument against the Euro, heard frequently nowadays in the UK, is the inability of countries to inject liquidity whenever a crisis occurs. In the Euro countries work within a fixed-exchange style system and countries are unable to inflate their way out of their crises. Instead, learning tough lessons through austerity measures and strict new controls. As each country joined the single currency they surrendered their power over monetary policy, the ‘monetary nationalism’ has been removed.

Central banks have been forced to show restraint during the Euro crisis, as they, really are no longer the central bank given the ECB has usurped power from national central banks. Providing an ideal ‘training environment’ for governments and countries who were otherwise used to central banks bailing the country out and devaluing their way out of crises.

Monetary nationalism

Both Hayek and Mises argued ‘monetary nationalism’ and floating exchange rates are the nemesis of a healthy economy. One of the great criticisms of the Euro, and the EU for that matter, is it removes a country’s sovereignty. When it comes to monetary arrangements, this is a preferable situation. In a gold standard the need for national monetary policy is moot.

The gold standard works a fixed exchange rate and liquidity cannot be created from thin air therefore issues cannot be temporarily inflated away.

Those feeling the brunt of the crisis at present, Greece, Spain and Ireland (and no doubt Portugal, Italy and France to follow), have been unable to take on these irresponsible measures. According to Von Mises the inability to embark on such easy monetary policy is what is needed to provide a healthy, free-market economy.

Mises wrote “The only condition required is the abandonment of an easy money policy and of the endeavours to combat imports by devaluation.”

This is an extremely brief look at this idea, but is one which I hope to come back to in the future. In the meantime, look up Jesus Huerta de Soto and his analyses. They may not seem as crazy as they at first appear.

Personally, I doubt the transfer to the next monetary system will be so smooth as to go via another monetary regime. I suspect when we do see gold fully acknowledged as money it will be though the process we are seeing take place now – central bank gold hoarding and increasing private investment.

If there were ever the opportunity to join the Euro, I wonder if the British people would allow it, at present I suspect not. However, there are many things people ten years ago thought we would never see and look where we are now.

Want protection from the race to debase? Buy gold online in minutes…

Jan Skoyles contributes to the The Real Asset Co research desk. Jan has recently graduated with a First in International Business and Economics. In her final year she developed a keen interest in Austrian economics, Libertarianism and particularly precious metals.  

The Real Asset Co. is a secure and efficient way to invest precious metals. Clients typically use our platform to build a long position and are using gold and silver bullion as a savings mechanism in the face on currency debasement and devaluations. The Real Asset Co. holds a distinctly Austrian world view and was launched to help savers and investors secure and protect their wealth and purchasing power.

© 2012 Copyright Jan Skoyles - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules