Heritage Backgrounder: The Centennial Monetary Commission Act

Originally posted on Thursday, July 10th, 2014

The Heritage Foundation’s Backgrounders long have been considered “the gold standard” of policy analysis by the center right policy community in the nation’s capital.

Now Heritage has issued a Backgrounder, The Centennial Monetary Commission Act of 2013: A Second Look at the Fed and the 2008 Financial Crisis by Heritage’s Norbert J. Michel, Ph.D.

Congress should set up a formal monetary commission, such as the one proposed in the Centennial Monetary Commission Act of 2013. This type of commission would provide a public venue for both critics and supporters to discuss the Fed’s past operations and the appropriate role for the central bank going forward.

It describes the Act as follows:

CENTENNIAL MONETARY COMMISSION ACT

The Centennial Monetary Commission Act (CMCA) (H.R. 1176) would “establish a commission to examine the United States monetary policy, evaluate alternative monetary regimes, and recommend a course for monetary policy going forward.” This bill, originally introduced by Representative Kevin Brady (R–TX), and a companion bill introduced by Senator John Cornyn (R–TX), would provide a much needed public forum for experts to evaluate the Fed’s overall performance and mission. The commission’s recommendations would not bind Congress to make any particular changes, but it would provide Members of Congress with information they need to fulfill their constitutional responsibilities for monetary policy.

Among the operating protocols which the Act would charter this Commission to review is the gold standard.  As Dr. Michel observes:

The gold standard, although it has many historical variations, is essentially another type of monetary rule. The gold standard requires paper currency in this regime to be convertible to a fixed amount of gold. From roughly 1870 to 1914 (commonly referred to as the classical gold standard period), all major nations adhered to this sort of gold standard. The U.S. dollar, for instance, was defined as 0.048 troy ounces of gold, which meant that an ounce of pure gold was equivalent to $20.67. People exchanged gold for currency and vice versa.

Under such a system, gold defines the monetary unit and serves as the ultimate medium of redemption. Both private banks and the central bank can issue paper currency (notes) under the gold standard, but their notes are redeemable in gold. Historically, banks held gold coins and/or bullion in reserve to meet customers’ redemption needs.

The rise of the gold standard to such respectful and prominent notice by such a prominent thought leader as Heritage Foundation represents a significant development in the policy discourse in Washington, DC.  The long eclipse of the gold standard as an appealing policy option clearly is beginning to pass away.