Reserve currencies should stop money printing to contain commodity bubble: IMF study

May 25, 2008 (LBO) – The world’s major ‘reserve currency’ central banks should stop money printing to end a monetary shock that is firing a global commodity bubble and food riots in poor countries, a new International Monetary Fund study has said. The money issued by major central banks such as the Federal Reserve and the Bank of England labeled (some say laughably) as ‘hard’ became reserve currencies for the monetary authorities of other countries, which ran ‘pegged’ systems.

Inflation continued to be high in the 1970s as reserve currency central banks struggled to conduct monetary policy without a gold standard.

The IMF study pointed out that from 1973 to 1980 crude prices had bubbled by an average of 46.5 percent, gold by 31 percent, rice 14 percent and wheat 11.2 percent.

Around 1980 reserve currency central banks led by Paul Volcker’s Fed went into strict monetary targeting bringing inflation and commodity prices (and gold) down to earth. This drove the US and parts of the world into a recession.

But crude oil prices expanded only 2.0 percent a year between 1981 and 1999, while gold fell 2.4 percent, rice fell 1.5 percent and wheat fell 1.7 per