There was a time in history when the gold standard existed as a monetary system, and is still considered a good one. This monetary system required all the countries taking part in this system, to pledge that they will keep the rate of their currencies in terms of gold.
The gold standard was first adopted by the United Kingdom. In the 1790s, there was a great shortage of silver in the UK, and so it started a major restructuring programme through which, gold coins were introduced. In'44, the Bank Charter Act was introduced according to which, the Bank of England notes, backed by gold, were made the legal standard in the country. The United States at that time was following a bi-metallic standard, which is the use of both gold, and silver.
However, in'73, the Fourth Coinage Act was passed, through which, the gold standard was embraced. Following these two major nations, many other countries also adopted the gold standard such as Germany, France, and Italy. The period from'80 to'14 is known in history as the classic gold standard. At that time, most nations of the world had moved towards the gold standard, and there was a lot of economic growth throughout the world.
The demand and supply of any currency was regulated through the gold standard, which also kept the supply stable. All exchange rates, meaning the value of a currency in relation to the currency of another country were calculated through the gold standard.
Hence, all over the world, a fixed exchange was followed, which reduced the insecurity of the economy. Even the price increase was controllable since the government could not form any inflationary pressures by floating the currency in the market.
However, the gold standard had its pitfalls as well. The effect of the currency of one country could be passed on to another, and disrupted the economy of the world. Hence, price levels, money supply, and economy would always change, and would be unstable. On the other hand, in order to be in the monetary system of the gold standard, all participating countries were bound to follow certain rules, which were not easy to follow.
Not all countries were loyal to these rules, and they did not change their discount rates loyally. Many people were unemployed during this time since economy was always changing, and there was also immense pressure on countries, which produced gold. Hence, the gold standard monetary system was finished.
The gold standard has no chances of coming back in the monetary system, but still many people believe it will be good for the economy. Although it managed to keep a fixed exchange rate, keep the price levels stable and did not give central banks the control of financial strategy, this system still had its drawbacks. - 29959
The gold standard was first adopted by the United Kingdom. In the 1790s, there was a great shortage of silver in the UK, and so it started a major restructuring programme through which, gold coins were introduced. In'44, the Bank Charter Act was introduced according to which, the Bank of England notes, backed by gold, were made the legal standard in the country. The United States at that time was following a bi-metallic standard, which is the use of both gold, and silver.
However, in'73, the Fourth Coinage Act was passed, through which, the gold standard was embraced. Following these two major nations, many other countries also adopted the gold standard such as Germany, France, and Italy. The period from'80 to'14 is known in history as the classic gold standard. At that time, most nations of the world had moved towards the gold standard, and there was a lot of economic growth throughout the world.
The demand and supply of any currency was regulated through the gold standard, which also kept the supply stable. All exchange rates, meaning the value of a currency in relation to the currency of another country were calculated through the gold standard.
Hence, all over the world, a fixed exchange was followed, which reduced the insecurity of the economy. Even the price increase was controllable since the government could not form any inflationary pressures by floating the currency in the market.
However, the gold standard had its pitfalls as well. The effect of the currency of one country could be passed on to another, and disrupted the economy of the world. Hence, price levels, money supply, and economy would always change, and would be unstable. On the other hand, in order to be in the monetary system of the gold standard, all participating countries were bound to follow certain rules, which were not easy to follow.
Not all countries were loyal to these rules, and they did not change their discount rates loyally. Many people were unemployed during this time since economy was always changing, and there was also immense pressure on countries, which produced gold. Hence, the gold standard monetary system was finished.
The gold standard has no chances of coming back in the monetary system, but still many people believe it will be good for the economy. Although it managed to keep a fixed exchange rate, keep the price levels stable and did not give central banks the control of financial strategy, this system still had its drawbacks. - 29959
About the Author:
Jack Wagon is a gold investment consultant. Learn how to buy gold in the times of recession. For more information visit his recommended website at http://www.goldmadesimple.com/.
