WORLD DEBT IN CRISIS -- A Special Report: Conservatives In U.S. Insist A Return to Gold Standard Needed; Others Aren't So Sure
WASHINGTON -- While debtor nations and their bankers scramble to deflect default, some government officials argue that a long-term solution to the international debt crisis isn't possible without changes in the world's monetary system.</br></br>At the London developed-countries economic summit earlier this month, leaders of the seven major industrial democracies reiterated support for a study -- started a year ago at the request of French President Francois Mitterrand -- of "ways to improve the operation of the international monetary system." The study's vague goals suggest a bureaucratic exercise to buy time. In the U.S., however, a small but vocal group of conservative economists wants fundamental changes in the monetary system -- the sooner the better.</br></br>"International monetary reform will be the issue of the mid-'80s, just as tax reform was the issue of the early '80s," predicts Rep. Jack Kemp. The New York Republican says the U.S. should convene a second Bretton Woods Conference and lead the world back to a gold standard.</br></br>This year marks the 40th anniversary of the Bretton Woods, N.H., meeting that created the post-World War II monetary order -- the World Bank, the International Monetary Fund and the system of fixed currency-exchange rates tied to the dollar, which in turn was anchored to gold. The bank and the fund remain, but fixed exchange rates collapsed in the early 1970s, when the U.S. stopped redeeming foreignheld dollars for gold and the world moved to its current system of floating exchange rates.</br></br>Rep. Kemp and other gold advocates contend that since then the world has suffered from an expansion of debt, soaring inflation and high interest rates. Some of the measures endorsed at the London summit -- longer loan-repayment periods for some nations and more private investment in development nations -- may provide short-term relief from current debt difficulties. But gold advocates insist that only a return to the gold standard will lead to international financial stability.