* World Bank chief urges G20 currency cooperation
* Zoellick says gold could be used as reference point
* Gold powers to record $1,410/oz on safe-haven buying
* ECB chief Trichet: central bankers not discussing idea
(Adds closing price for gold, more details)
LONDON/WASHINGTON, Nov 8 The world's largest
economies should consider gold as an indicator to help set
foreign exchange rates, the head of the World Bank said on
Monday in a proposal that threw open the acrimonious currency
debate just before a summit of G20 nations.
Writing in the Financial Times, World Bank President Robert
Zoellick called for a new monetary system to replace the
floating rates adopted in 1971 known as Bretton Woods II.
In typical Zoellick style, the proposal before the G20
leaders' summit in Seoul is aimed at fueling a broader debate
on currencies that goes beyond competitive devaluation wars.
The price of gold powered to a record $1,410 an ounce on
Monday during safe-haven buying after the U.S. Federal Reserve
last week resumed buying Treasury bonds to inflate its money
supply. For details, see [ID:nLDE6A70ZW]. Spot gold was last
trading at around $1,406 an ounce. XAU=
Gold has risen nearly 6 percent since just before the Fed
detailed plans last Wednesday to buy $600 billion in Treasuries
to revive the economy, also stoking inflation fears.
The former U.S. trade representative, who served in several
Republican administrations including Treasury, said the new
system "is likely to need to involve the dollar, the euro, the
yen, the pound and (a Chinese yuan) that moves towards
internationalisation and then an open capital account".
"The system should also consider employing gold as an
international reference point of market expectations about
inflation, deflation and future currency values," he added.
Zoellick did not spell out in detail how this system might
work, but said it would help to rebuild the confidence of
financial markets and the general public in the global monetary
system after the financial crisis.
He first raised the idea at a G20 finance ministers meeting
in Gyeongju, South Korea, in late October.
However, policymakers appeared cool to the idea on Monday
and many analysts said they doubted it would be implemented
given practical difficulties.
European Central Bank President Jean-Claude Trichet said
central bankers from around the world did not discuss returning
to a gold standard at a meeting of the Bank for International
Settlements in Switzerland on Monday.
"In my memory such an idea was mentioned a long time ago by
Jim Baker when he was a (U.S.) Secretary of Treasury in the
1980s. I have no particular comment," Trichet told a news
A German government official, speaking on condition of
anonymity, said Zoellick was correct in worrying that currency
values were becoming too vulnerable to the whims of
"The diagnosis that Zoellick is making is correct: that
monetary policy is becoming overly politicised," the official
said. "The system, as it is, is not functioning well."
But he added that it would not be practical to use modern
monetary policy tools in a system that was "based on a
commodity whose availability is dictated by natural
That Fed's policy of quantitative easing, or QE2, has fed
acrimony among leading economies in the Group of 20 in the
run-up to their summit in Seoul on Thursday and Friday.
China and Germany, major exporting nations, have both
criticised the Fed's strategy -- effectively printing money --
which is weakening the dollar.
Investors are pumping dollars into emerging markets in
search of higher yields, and the potentially destabilising
impact of this, along with big current account deficits and
surpluses as well as China's reluctance to let the yuan
appreciate faster, are set to dominate the G20 debate.
France, which takes over the G20 chair after this week's
summit, says it plans to work on a new international monetary
system to bring greater currency stability.
French officials said Zoellick's ideas mirrored initiatives
President Nicolas Sarkozy aimed to promote during France's 12
months in the G20 fron next week.
Beijing's central bank chief has suggested an alternative
monetary system based on using the International Monetary
Fund's Special Drawing Rights, a notional unit of value based
on a basket of major currencies, instead of the dollar as the
sole global reserve currency.
Zoellick was a senior official in the U.S. Treasury at the
time of the 1985 Plaza and 1987 Louvre Accords on rebalancing
currencies among major industrialised nations. He noted that
that phase of currency coordination helped launch the Uruguay
Round of world trade liberalisation negotiations.
While his opinion article in the Financial Times did not
represent either U.S. or World Bank policy, it may reflect a
greater openness in Washington than in the last two decades to
some form of international currency cooperation.
"The dollar is losing its relevance especially with the
emergence of Asia economies, so a more neutral benchmark may be
required. Gold, amid all the recent uncertainty, is proving its
worth," said ANZ's senior commodity analyst Mark Pervan.
Zoellick said a new monetary system would take time to
develop and should be part of a package approach including
possible changes in IMF rules to review capital as well as
current account policies, and linking IMF monetary assessments
to World Trade Organisation obligations.
(Reporting by Lewa Pardomuan, Nick Trevethan, Paul Taylor and
Paul Carrel; Writing by Paul Taylor and Lesley Wroughton;
Editing by Ruth Pitchford, Andrew Torchia, Andrew Hay)