World Bank head calls for debate on New Gold Standard

Robert Zoellick argues more co-operative monetary system would increase investor confidence and stimulate growth.

The head of the World Bank has reignited the debate over the future of the global monetary system by urging world leaders to consider reintroducing a gold standard to guide currency movements.

Robert Zoellick, president of the World Bank, said today that the world's largest economies should build a more co-operative monetary system. This would increase investor confidence and stimulate future economic growth, he argued.

"This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi [yuan] that moves towards internationalisation," said Zoellick in an article published in the Financial Times. "The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values."

Zoellick's comments came just three days before world leaders gather in Korea for the G20 summit, where the US Federal Reserve's decision to embark on a fresh $600bn (£370m) fiscal stimulus is expected to be widely criticised.

It is nearly 40 years since President Nixon abruptly terminated the link between the dollar and gold. This decision ended the Bretton Woods system, under which leading economies agreed to keep their currencies pegged to the dollar at fixed, but adjustable, rates. Zoellick acknowledged that returning to a gold standard might seem anachronistic, but argued that it was already being used as an "alternative monetary asset" today.

The US Federal Reserve has come under growing pressure since announcing a fresh $600bn quantitative easing programme last week. Germany's finance minister, Wolfgang Schäuble, attacked the move today, saying it would destabilise the global economy. He argues that the US is using "QE2" to temporarily devalue the dollar.

"I seriously doubt that it makes sense to pump unlimited amounts of money into the markets. There is no lack of liquidity in the US economy, which is why I don't recognise the economic argument behind this measure," Schäuble told the German magazine Der Spiegel.

"It's inconsistent for the Americans to accuse the Chinese of manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money," Schäuble added.

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