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The crisis isn't over -- but the euro is too big to fail

MATTHEW Bishop is fascinated by money. As he laughingly admits, it's not because he has a vast amount of it himself. The Economist magazine's US business editor, however, is required to watch the currency markets like a hawk -- and in his new book In Gold We Trust? (co-written with the economist Michael Green), he suggests that the world will soon start thinking about cash in a very different way.

"Money is a technology," says the erudite Englishman, who came to Ireland recently to attend the Change Nation conference in Dublin Castle. "It's something that human beings invented so that we could do business together. And like all technologies, it evolves over time -- today's iPad might be tomorrow's Commodore 64."

In Ireland today, many people are anxiously wondering if the euro can survive and what its demise would mean for our savings. Bishop acknowledges these concerns, but claims that the financial crisis goes far beyond Europe. He points to the recent surge in the value of gold as evidence that investors are losing their faith in paper money -- and the spreading fear that if world leaders don't get their act together, then the contents of our wallets could end up being only slightly more valuable than toilet roll.

"Gold is like a canary in a coal mine," he says. "On the US dollar, it says 'In God We Trust'. That should really be 'In Government We Trust', because the whole basis of paper money is that the government guarantees its value. When people start to doubt that promise, they buy big heavy bars of metal instead."

The figures bear out what Bishop is saying. Between November 2009 and September 2011, gold rocketed in value from $1,100 an ounce to $1,920. Although it has slipped back since then to just over $1,600, the volatility shows that even top-flight investors are just as unsure about the future as everybody else.

"I got the idea for this book in New York when I saw an argument between Bill Gates and the billionaire entrepreneur Thomas Kaplan," says Bishop. "Kaplan was urging everybody to buy gold, Gates looked at him the way an atheist would look at a Jehovah's Witness. I wanted to test the arguments and see who was right."

As Bishop explains, this is an age-old debate. From Jesus Christ to the A-Team's Mr T, people throughout history have been associated with the world's most precious metal. On the other hand, some financial experts dismiss gold on the grounds that you can't actually do anything useful with it.

Bishop's book stops short of claiming that we are on the verge of a gold rush, but does suggest that having a little yellow metal in your portfolio would be a sensible move.

"People who buy gold are betting that politicians won't be able to solve the financial crisis," he says. "If you look at the US presidential election, it's not clear that Obama or any Republican has the courage to offer policies that will really fix the country's debt problem. It's far too tempting for them to push the inflation button, which would rip off savers and weaken the dollar even further."

If Bishop is right, however, then people in Europe shouldn't panic just yet -- he is convinced that the euro project is simply too big to fail.

"Politicians like Angela Merkel don't want to go down in history as the leaders who let the euro die," he points out. "There will probably be more crises, because the Germans have to cough up a lot of money and they will force other countries to adopt some very tough rules. But I believe that the currency will survive, even if it makes more political sense than economic sense."

The future of gold is just one of Bishop's concerns. He is an active campaigner for philanthrocapitalism, which is essentially the idea that billionaires should give away some of their money in order to help society. While this may sound like a hard sell, it has taken him all over the world and won him praise from no less an authority than Bill Clinton.

"The short-term, 'greed is good' model of capitalism has failed," he says. "But there is still no realistic alternative to capitalism itself. It needs to be upgraded, not replaced.

"Philanthrocapitalism is about combining the head and the heart, using a businesslike approach to solving society's problems. There are more super-rich people around than ever before and they can use their expertise to do things that governments or charities can't. Of course, you can't totally eliminate the darker side of human nature. But in recent years we've seen corporations such as Nike, Pepsi and WalMart adopting much more socially responsible and environmentally stable policies -- because they realise that it's good for business."

Looking to the future, Bishop predicts that paper money may soon become as out-dated as vinyl records or horse-drawn carriages.

"Money is all about faith and gold is an old-time religion," he says. "Sooner or later, something new will come along. You might even be able to store everything on a silicon chip inside your head."

In Gold We Trust? by Matthew Bishop and Michael Green is now available as a Kindle eBook


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