History Of The Gold Standard
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 era of the gold standard merely started from England, in 1790s due to a shortage of silver, which compelled them to use Gold coins instead of silver. Later on, the Bank Charter Act in’44, made gold as the legal standard of selling, and buying currencies.
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.
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.
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.
Several supporters of gold standard still exist, even though the system is no longer there. These supporters still believe that the gold standard brings in stability in the prices, keeps the control of monetary policy away from the central banks, and manages a fixed exchange rate. Perhaps the gold standard cannot be revived again any time soon.
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