IN THE AFTERMATH of the first world war, the gold standard inspired nearly religious fervour from central bankers. European officials dutifully re-pegged their war-battered currencies to gold at great cost to their citizens. A hundred years on, it has lost its lustre. Judy Shelton's past support for it may have derailed her nomination to the Federal Reserve's board. A recent paper* shows why the gold standard's tarnished reputation is well deserved.

The authors calculate the impact of a gold standard, had it been in place in 2000-20. This would have required the Fed to set interest rates to maintain a fixed dollar price of gold, rather than to target inflation. The central bank's policy rate would have become a function of gold supply-the amount of metal mined-and gold demand from investors and households.