The Gold Standard was a monetary system in which the participating countries made a commitment to make gold their currency. It was the most famous monetary system in history, but is no longer in use.
In 1790s, there was a shortage in the silver in UK, which forced them to use gold coins in replacement. The gold standard began during this time when the Bank Charter Act was introduced in'44, in which the use of gold coins became a legal standard. Bi- metallic standards were set in America on the other hand, which included both silver and gold coins.
However, the gold standard was embraced in'73, when gold was made the legal standard, and both major nations started using it. Other countries such as Germany, Italy, and France, also followed, and participated in this monetary system. The gold standard existed from'80 to'14, and resulted in main monetary development all over 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.
Although the gold standard seemed to be appealing, but due to certain effects of it, this system was ended. The biggest drawback of the gold standard being the domino effect of the economy of one country on another country, forced the price levels, money supply and economy to be varying all the time. Due to this, many times the world economy would become unbalanced.
Moreover, for the gold standard to work perfectly, the central banks of participating countries had to follow a certain set of uniform rules, which proved to be quite difficult. Many countries did not follow the rules, and therefore, did not change their discount rates affectively. Unemployment was also relatively high in the period of the gold standard. Finally, the cost of producing gold was a burden on many economies.
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. - 33380
In 1790s, there was a shortage in the silver in UK, which forced them to use gold coins in replacement. The gold standard began during this time when the Bank Charter Act was introduced in'44, in which the use of gold coins became a legal standard. Bi- metallic standards were set in America on the other hand, which included both silver and gold coins.
However, the gold standard was embraced in'73, when gold was made the legal standard, and both major nations started using it. Other countries such as Germany, Italy, and France, also followed, and participated in this monetary system. The gold standard existed from'80 to'14, and resulted in main monetary development all over 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.
Although the gold standard seemed to be appealing, but due to certain effects of it, this system was ended. The biggest drawback of the gold standard being the domino effect of the economy of one country on another country, forced the price levels, money supply and economy to be varying all the time. Due to this, many times the world economy would become unbalanced.
Moreover, for the gold standard to work perfectly, the central banks of participating countries had to follow a certain set of uniform rules, which proved to be quite difficult. Many countries did not follow the rules, and therefore, did not change their discount rates affectively. Unemployment was also relatively high in the period of the gold standard. Finally, the cost of producing gold was a burden on many economies.
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. - 33380
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/.
