The Era Of Gold Standard

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.

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.

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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