Recently BIS Economist Claudio Borio participated in a panel discussion in which he laid out his thoughts on problems in the current monetary system. Below I a made bullet point list of some of this key comments. You can watch here. At around the 1:08 minute mark, he has some interesting comments about the classical gold standard.
Bullet Points in this presentation:
- interest rates have been low so long because of monetary policies that have unintended consequences
- our economic models rely on assumptions and variables that cannot always be observed
- central banks should passively follow true natural interest rates
- financial booms and busts may be attributable to monetary policies
- policies that just react to busts leads to more problems later and a "debt trap"
- dis-inflationary environment is making expansionary monetary policies only temporary in impact
- asset prices can be mis aligned for long periods of time, the same thing can happen with interest rates
- during the gold standard, interest rates never hit the zero bound or got as low as they are today
- persistent low interest rates raise the risks to global financial stability
- persistent low rates weaken the profitability and stability of the banking system (they are a slow death for banks)
- it will take higher inflation to get interest rates higher (as they need to be)
- a snap back to higher inflation is possible, but it may take some time to reverse deflationary headwinds