Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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.


© 2005-2022 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