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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 gold standard boomed up the economy of the whole world by since it regulated the demand and supply of the currency of any country, and helped keeping the supply steady. The value of the currency of one country over the currency of another country, which is known as the exchange rate was also determined by the gold standard.
All currencies moved together, and the gold standard led to a fixed exchange rate all over. All doubts in economy were removed, and even inflation could be controlled since governments could not float currency in the market to build pressure.
There were also certain disadvantages, which led to the abolishment of the gold standard. The fixed exchange rate system meant that monetary shocks in one country were transmitted to other countries as well. This led to changes in the economy, money supply, and price levels in other countries. While there was long-term stability, prices were sometimes highly unstable in the short run.
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.
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/.
categories: buy gold,buy gold bullion,gold bars
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