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A Road to Prosperity

The case for a modernized gold standard.

By From the October 2012 issue

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Step 1. The president announces unilateral resumption of the gold monetary standard on a date certain, not more than four years in the future. Unilateral resumption means that the U.S. dollar will be defined by law as a certain weight unit of gold. The Treasury, the Federal Reserve, and the entire banking system will be obligated to maintain the gold value of the dollar. On the date of resumption, Federal Reserve banknotes and U.S. dollar bank demand deposits will be redeemable in gold on demand at the statutory gold parity. Further use by foreign governments of the dollar as an official reserve currency will entail no legal recognition by the United States.

Step 2. The president issues an executive order eliminating all taxes imposed on the buying, selling, and circulating of gold. Another executive order provides for the issuance of Treasury bonds backed by a proportional weight of gold. Since Federal Reserve notes and bank deposits (money) are not taxed by any jurisdiction, the executive order specifies that gold, being legal tender, is to be used as money and thus to go untaxed. Gold can be used to settle all debts, public and private. The Treasury and authorized private mints will provide for the creation and wide circulation of legal tender gold coin in appropriate denominations, free of any and all taxation.

Step 3. Shortly after announcing the intent to go forward to a modernized gold standard, the United States calls for an international monetary conference of interested nations to provide for the deliberate wind-up of the dollar-based, official reserve currency system and the consolidation and refunding of foreign official dollar reserves. The international agreement to be negotiated will inaugurate the reformed international monetary system of multilateral convertibility of major countries’ currencies to the gold monetary standard. Stable exchange rates would be the result. The value of each participating currency would be a function of its stipulated gold parity.

Step 4. The conference, attended by representatives of the Bank for International Settlements, International Monetary Fund, World Trade Organization, and the World Bank, would establish gold as the means by which nations would settle residual balance-of-payments deficits. The agreement would designate gold, in place of reserve currencies, as the recognized international monetary reserve asset. Official foreign currency reserves, to a specified extent, would be consolidated and refunded.

Step 5. A multilateral, international gold standard—the result of the conference convertibility agreement—would effectively terminate floating and pegged-undervalued exchange rates. The reformed monetary system without official reserve currencies, the true international gold standard, would establish and uphold stable exchange rates and free and fair trade, based upon the mutual convertibility to gold of major national currencies.

Now we are able to formulate an authentic, bipartisan program to restore 4 percent American economic growth over the long term. Tax rate reductions with an enlarged tax base, government spending restraint aimed at a balanced budget, simplification of business regulation designed to empower entrepreneurial innovation—these reforms can be made effective for America and the world by a modernized gold standard and stable exchange rates. This is the very same platform which uplifted 13 impoverished colonies by the sea in 1789 to leadership of the world in little more than a century.

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About the Author

Lewis E. Lehrman is a senior partner at L. E. Lehrman & Co. and chairman of the Lehrman Institute.