The Era Of Gold Standard

Although it no longer exists, the gold standard was the most famous monetary system history. It involved all the countries, which promised to set their currencies as per the rate 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.

On the other hand, America was using both metals as a legal standard, but after the Fourth Coinage Act passed in’73, all countries adopted the gold standard. France, Italy, and Germany also followed the gold standard, and the time of’80 to’14 is said to be the peak of gold standard era. Through out the world, huge economic growth was observed during this period.

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.

This led to the use of fixed exchange rates throughout the world, and meant that the value of currencies were always seeing upheavals and down turns remaining in connection, which led to a reduction in economic uncertainty. There were other benefits of the gold standard as well. Inflation was controlled because the governments could not simply issue currency, and float it in the market to create inflationary pressures.

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.

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.

Although the gold standard no longer exists, it still has its advocates. Many people still believe in it as it leads to price stability, prevents the central banks from having too much control over the monetary policy, and allows a simple system of fixed exchange rates. However, owing to its many disadvantages, a revival is unlikely.

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/.

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The Era Of Gold Standard

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