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.
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.
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 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.
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.
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. - 29871
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.
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 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.
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.
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. - 29871
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/.
