History Of The 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 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.

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.

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.

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.