Talking to Financial Times, he said this news system "should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today"
He added the system “likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalization.”
Currently, markets are based on "fiat" or government-created money.
There was an international gold standard before and it acted like an exchange rate mechanism. In that system, a currency would be converted into fixed amounts of gold and buy and sell it at that price. The market would then determine the exchange rates based on the economic difference between the two currencies for an ounce of gold. It initiated in 1944 by the Bretton Woods agreement and abandoned by Nixon in 1971.
But is it practical?
Although the details of this new system are not clear, it will not be easy to put into practice. While governments are engaged in currency wars and looking for a way out of it, it may not be practical to solve it with a system like this. Gold as a commodity has limited supply and it may not keep up with increases in world money supply.
Initially, market did not weight much to this news as early Monday morning, gold was trading at the $1,390 area where it closed on Friday. Later on the day prices rose to above $1,400.
