On Monday, the price of gold touched $500 an ounce, the highest since 1987. The chairman of the Federal Reserve should hang his head.

In a world of midget-size interest rates, dollars in a savings account pay 4%. Knowing only this much, you might suppose that the greenback would be on the upswing. And so it is, against the low-yielding euro and the virtually sterile yen. But against gold – which famously pays no interest at all – the dollar has been in a five-year tailspin.

Inflation is far from the worst of President Bush’s problems. But that is not to say that America has achieved the nirvana of “price stability,” as some members of the Federal Reserve Board are rashly wont to claim. Today’s greenback buys 11.7% fewer goods and services, as measured by the Consumer Price index, than it did at the start of the first Bush term. It buys 20.5% fewer euros and 2.7% fewer yen. And it buys 46.6% less gold.

If financial markets were just a little less mysterious, billions of people would be rich, but paradox is the way of Wall Street. And so, paradoxically, the price of gold has been appreciating against all major currencies, not just the dollar. It has thereby been entering a vote of no confidence against all major central banks.

Most wouldn’t have predicted it, because this is the age of central banks. Alan Greenspan is arguably the most revered figure in American finance. His successor-inwaiting, Ben S. Bernanke, is basking in a kind of anticipatory adulation. The dollar is the world’s top monetary brand. Yet it, like the others, is purely faith-based: Nothing stands behind it but the government’s taxing power.

Until Richard M. Nixon decided he had a better idea, the dollar was convertible into gold at the rate of $35 to the ounce. Foreign governments, or their central banks, could make the exchange (American citizens could not; Franklin D. Roosevelt revoked the privilege in 1933). Though few dollar holders actually showed up to demand gold, the fact that they could checked the rate at which newly printed dollars could enter the world’s payments stream. But the check proved inadequate to the profligacy of the government, and the gold-backed dollar was cut loose from its golden anchor on August 15, 1971.

The Great Inflation ensued. Interest rates went the moon. In January 1980, the gold price touched $850, and nothing seemed more certain than that paper money was a goner. But towering interest rates (courtesy of Paul A. Volcker, Mr. Greenspan’s predecessor as Fed chairman) worked their magic and inflation receded. In 1981, interest rates started to fall. In 1982, stock prices began to rally. The reputation of central banks and central bankers rallied with the market.

Today, the line between the old art of central banking and the black art of central planning is getting blurrier. Dozens of central banks claim to be “targeting” inflation. By this they mean that they are managing the rate at which their currencies depreciate. That a currency should depreciate is, for the central bankers of all nations, gospel. Not a lot of inflation, mind you – a mere 2.5% or so a year (which translates into a not-so-mere 20.3% a decade).

Mr. Bernanke is a fine one for arguing the merits of only a little inflation. And if there were no inflation, he said in a speech in late 2002, the government could drop dollar bills from helicopter doors to restart the process of debasement. Questioned later about this unforgettable image, the former chairman of the Princeton economics department said that he was only speaking poetically.

“This is a great and powerful government,” Treasury Secretary John G. Carlisle said in 1893, during the second administration of President Cleveland, “but there is one thing it cannot do – it cannot create money.”

Carlisle’s orthodoxy is yesteryear’s. If there is one thing that governments do in 2005, it’s print money. And to survey the $45 trillion global bond market, nobody seems to object to it. As recently as 1984, the U.S. Treasury had to pay 14% to borrow for 30 years. Now it gets away with just 4.75%, though the measured rate of inflation is not much higher today than it was then. The world over, interest rates are not much higher than inflation rates – a message of confidence in central banking if there ever was one. Or overconfidence.

After the Roosevelt administration ordered the nationalization of private gold holdings in 1933, political suspicion attached to some of the people who had surrendered it. Bernard M. Baruch, private investor and free-lance political operative, was one of these suspects. In response to an official query, late in the decade, as to why he had bought gold at a time when it was lawful to do so, Baruch laconically replied, “because I was commencing to have doubts about the currency.”

Gold is ductile, precious, beautiful – and mute. But that is not to say that the gold price doesn’t hold a message. If I have decoded today’s message correctly, it is that Baruch’s speculative descendants are commencing to have doubts about central banks. Well they might.

Mr. Grant, the editor of Grant’s Interest Rate Observer, has himself taken Mr. Baruch’s lead with gold.