Former Trump advisor explains how to stop currency manipulation

Shelton: Fed's 'flawed model' made inequality of wealth & income worse
Shelton: Fed's 'flawed model' made inequality of wealth & income worse

Tying currency to gold would make President Donald Trump's promise of ending currency manipulation a lot more doable, former Trump advisor Judy Shelton told CNBC Wednesday.

"If we had gold as some kind of a universal reference point, it would be the beginning of a more stable monetary platform, certainly, for trade," Shelton told CNBC's "Closing Bell." "I think you need to have sound money in order to have genuinely free trade."

Bringing currency manipulation to the center

Searches for "currency manipulation" skyrocketed shortly after Trump's election. Source: Google Trends.

Currency manipulation has been a focal point of the Trump administration, taking a seat as one of its most central trade goals.

As an advisor to his transition team, Shelton was supportive of the president-elect bringing attention to the problem. Now, she says, it can help him achieve more fair trade for the U.S.

"I applaud President Trump for focusing on the problem of shifting exchange rates and how much that undermines free markets and what we think of as the principles of free trade," she said.

But while Japan and China often get the brunt of the criticism, Shelton says that all countries — the U.S. included — participate in the practice. The Fed calls it "quantitative easing," but Shelton says it serves the same purpose.

"One could argue that all central banks, in a sense, and while maintaining plausible deniability, are currency manipulators," she told CNBC. "They're just more subtle about it."

But tie currency closer to gold, and exchange rates will become much closer to reality, she said.

"We're talking about monetary integrity. And if we really do have a some kind of a global economy, it doesn't make sense that people are using different units of account to measure value."