Three cheers for Robert Zoellick. Writing in the FT this week, the World Bank president set out an ambitious agenda for the Group of 20 leading economies to “rebalance demand” and “spur growth”. He recognises that the reduction of current account imbalances is a necessary condition for a non-protectionist trading system.

Global imbalances lie at the heart of the current recession; failure to address them will abort recovery and lead to currency wars. Gold can play a minor part in the necessary rebalancing, as Mr Zoellick suggests – although history shows that a gold standard would be too deflationary.

Put briefly, the underlying cause of the present crisis was an increase in reserve “hoarding”, chiefly by China. This was made possible by the deliberate undervaluation of the renminbi against the dollar; its motive was to insure against another flight of “hot money” from east Asia as happened in 1997-98. Under a gold standard, increased reserve accumulation would have been deflationary, since it would have drained the rest of the world of liquidity. Had Chinese reserves been held in gold rather than in US Treasury bills, the Fed would have been obliged to raise interest rates; as it was, it could run a cheap money policy. But in the absence of new investment opportunities, “recycling” of Chinese reserves produced an unsustainable asset and consumption boom in the US. It was the perverse nature of the world monetary system that allowed it to happen in the way it did.