A new sound money movement for the GOP?

Something interesting may be happening among GOP presidential contenders as they strive to lay out their separate economic agendas. On the vital issue of money — referring specifically to the soundness of our dollar and its relationship with other currencies — we could be witnessing an intellectual coalescence of positions that could prove quite powerful.

{mosads}Between Donald Trump’s strident objection to currency manipulation as an infringement on free trade and Texas Sen. Ted Cruz’s clarion call for “getting back to rules-based monetary policy,” it seems that the importance of sound money for the proper functioning of free-market capitalism might be coming to the forefront as a winning political issue.

Both candidates are essentially making the same argument: When money is manipulated by central banks to achieve domestic economic objectives, it distorts the normal interplay between supply and demand and leads to warped economic outcomes.

For example, when China’s central bank takes measures to devalue the yuan against the dollar, it makes U.S. products more expensive than those produced in China — skewing global sales in China’s favor at the expense of U.S. manufacturers. Similarly, when the Federal Reserve suppresses interest rates, it makes the cost of obtaining credit artificially low for privileged borrowers; at the same time, people with ordinary bank accounts are shortchanged by receiving low interest rates on savings.

In both cases, central banks are deliberately altering the demand and supply for money in an attempt to slant the economic playing field in a particular direction. Though it’s done for purposes of providing monetary “stimulus” for the intended nation’s benefit — to gain a trade advantage for China; to spur expanded production and higher employment for America — it ends up violating the basic function of money. Instead of serving as a reliable tool for measuring value and conveying it through accurate price signals, corrupted money provides an avenue for rewarding one group to the detriment of another.

If GOP candidates can reconcile the fact that the answer is to restore sound money through a rules-based approach that prevents central banks from abusing the monetary privilege, they can address currency manipulation in a profound way. While it’s politically popular and economically valid to recognize that currency devaluation by China or Japan or Mexico constitutes a rip-off of American producers — and Trump deserves kudos for highlighting this violation of free trade — it’s not enough.

What’s needed is a proposal for establishing new monetary rules that accomplish two big objectives: (1) reconnecting the value of the dollar with the real economy and (2) restoring order to the global currency system.

With regard to the first goal, leading Republican presidential candidate Dr. Ben Carson focused on the need for monetary reform in a recent “Marketplace” radio interview. Federal budget deficits year-after-year have resulted in massive debt obligations, he noted, which the U.S. government is able to sustain “because of our artificial ability to print money, to create what we think is wealth, but it is not wealth, because it’s based upon our faith and credit.” Lamenting the impact of fiscal irresponsibility on monetary policy, Carson pointed out that the U.S. dollar was decoupled from domestic gold convertibility in 1933 and from the gold-anchored Bretton Woods international monetary system in 1971. “Since that time, it’s not based on anything,” he stated. “Why would we be continuing to do that?”

By invoking both the classical gold standard and Bretton Woods in the context of restoring the dollar’s fundamental soundness, the importance of monetary integrity both at home and abroad becomes clear. How can we determine whether nations are cheating in the global marketplace by manipulating their currencies unless we can point to a standard of value — a monetary lodestar or reference point — that provides an appropriate rule for all to observe?

Gold has served as that neutral and universally acknowledged monetary standard throughout much of modern history. It has served as a bulwark against fiscal indiscipline and as an arbiter of free trade in the global marketplace. When the rule of gold convertibility reigned domestically in U.S. history, government spending was constrained; when the rule of gold convertibility reigned internationally, exchange rate stability was maintained. Money functioned properly as a reliable tool for measuring the value of competing goods and services — and currency devaluation could not be used to subvert the principles of free trade.

Trump has done the GOP a service in showcasing the vital missing element in sweeping trade agreements that do not address the imperative of a level monetary playing field. Tariffs are not the right remedy to currency infractions, though; they set up tit-for-tat retaliations that lead to a downward spiral of protectionism, stymied trade and depressed economies. Better to advocate pro-growth policies based on restoring sound money. As Florida Sen. Marco Rubio, another presidential candidate, affirmed at the 2012 Jack Kemp Foundation Dinner: “The arbitrary way in which interest rates and our currency are treated is yet another cause of unpredictability injected into our economy.”

Let’s hope that Republican candidates will continue to push for reforms aimed at restoring the monetary integrity of the dollar in pursuit of productive domestic economic growth and as the cornerstone for building an orderly international monetary system. “We need sound money,” Cruz declared at the last GOP debate. “I think the Fed should get out of the business of trying to juice up the economy and simply be focused on sound money and monetary stability — ideally tied to gold.”

It’s a bold statement and potentially a significant way for America to demonstrate its commitment to genuine free trade on the world stage. Leading by example, we can begin to establish a sound money framework for conducting cross-border transactions in a way that maximizes opportunity and prosperity. By launching an American initiative for exchange-rate stability anchored by gold, we can truly write the rules for the global economy in keeping with free-market values.

Shelton, an economist, is co-director of the Sound Money Project for the Atlas Network and author of Money Meltdown: Restoring Order to the Global Currency System.