Countries should make gold a key reserve asset to reduce risks in a "one-currency" world monetary system dominated by the US dollar, a World Gold Council senior official said Tuesday.
Robert Weinberg, the council's head of institutional investment, said the dollar's dominance had reached far beyond its traditional role in money, capital markets and foreign exchange reserves.
"It extends also to the worldwide influence of the Federal Reserve in shaping the monetary conditions of the global economy," Weinberg told a news briefing.
Countries linked to the dollar were forced to follow US monetary policies and even Japan and the Euro area cannot escape, he said.
"In a sense it could be viewed as recolonization. An increasing number of countries seem to be yielding voluntarily that independence that many fought for so long and hard ... the world depends critically on the Fed and on (its chairman Alan) Greenspan."
Currently, he said, about 50 percent of global equities are dollar-denominated, as are 47 percent of global bonds, 35 percent of foreign bank loans, 87 percent of forex transactions and 48 percent of international trade payments.
Weinberg warned of the dollar's vulnerability in the long-term, citing the US ballooning current account deficit and its massive accumulation of external liabilities.
He said countries should diversify into gold.
"The overall risk of a portfolio shrinks when you add gold and the portfolio becomes much more robust... it becomes better able to cope with shocks to the system," he said.
Governments, central banks and other official institutions currently hold 32,000 tons of gold, or a quarter of world stock, he added.
Weinberg said the world gold price, currently hovering between 260 and 270 dollars an ounce, is more likely to rise than to fall.
Some 30 percent of world gold was being produced at a loss. And with little incentives to open new mines, output was unlikely to increase for the next few years.
A pact in September 1999 by leading central banks -- to contain sales of gold in their reserves to not more than 2,000 tons over the next five years -- had also capped fears of a "tidal wave" of gold sales, he said.
But Weinberg criticized the ongoing gold auction by the Bank of England. By advertising the sales ahead of time, this led investors to sell short so they could buy at cheaper price at the auction, he said.
"They went about it in a very bad way. There are better ways of doing it, although we didn't think they should have done it at all," he added -- KUALA LUMPUR (AFP)
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