The CB's know the cost of not sticking together, that is why at the Bretton Woods conference they agreed to demonetize gold, gradually, so as not to cause dislocaions and allow each country a gradual shift.
The cost of keeping currencies tied to gold is either a world wide economic deceleration or a massive hyper inflation, neither of these are good choices.
Do the calculation yourself, the world economy is about $40 T (all round numbers), growing at an average annual pace of 4% (the IMF target is higher), or at $1.6 T/year and growing. Money supply must grow at the same rate, or else, the economy stops in its track. Let be very conservative and say that we need only half of that in money stock (assuming money stock is at half of GDP), that means we need to print worldwide about $800 Billions annualy, to keep the world economy from stalling. If indeed that new money was forced to be backed by gold, a current prices (assuming a round number of $10,000,000 per tonne of gold), we would require 12,000 tonnes of monetary gold (15% backing of new money, and I am not talking about old money currently "backed" by only 29,000 tonnes, most of it US gold, to be exact, 8149 Tonnes, another 10,000 tonnes in the hands of Germany, France Italy and Switzerland), and that supply must grow at least at the rate of growth of the rest of the world economy. You have two choices, you first incur the wrath of pricing gold at a new level (about $20,000,000,000,000/29,000 or roughly $.75 billions/tonnes, or roughly $25,000/ounce, and then make sure that gold (now priced at this new level) is continually produced at a growth rate equal to the world economy growth rate (that is what I have termed the "Gold Sodom bed").
And after such a repricing, the five countries holding 19,000 tonnes will be the main beneficiaries, and later, three countries will be the beneficiary of the miseries of the rest of the world, South Africa, the US and Russia, the three largest producers of gold, thus the US robbing the rest of the world as well (and doubly so, first on "repricing" and then on production). Of course, repricing gold by a factor of 100 will create a huge wave of hyperinflation world wide, of which the main beneficiary will once more be first, the quintet, then triumvirate stated above, the US will always come on top. Repricing of gold to that extend, will put roughly a tax of 7.5% (on the growth of the economy)on the rest of the world paid to the three major gold producers. Believe me, at such a price, the US will rapidly become the number one producer, getting most of that tax for itself.
That is an extremely simplistic explanation (it does not take into account that massive inflation will require much more currency and thus more gold at ever higher prices), and if gold does not keep its production rate at the desired worldwide economical growth rate, economic stagnation and even major world recessions or depressions will occur. The cyclical highs and lows of the whole world economy will now be much more severe, since they will be tied to one barbaric commodity and the ability to find more and more gold to support the growth of the world economy.
I am quite upset at your forcing me to engage in such verbosity. (g)
Zeev
