subject: What Is The Gold Standard? [print this page] One of the interesting aspects of history is the history of money. The gold standard was a very important part of this history. Despite the fact that the gold standard in not used anymore, it is good to understand what it meant and why it influenced the economy of the world.
In a few words, the gold standard represents an agreement of several countries to establish a certain value for their national currency related to a certain amount of gold. People were not in the possession of gold. Instead they had banknotes which could automatically be changed for a certain amount of gold. Countries had to mint just as many coins and print as many papers as the amount of gold kept in the national reserve. Currency was the expression of the amount of gold owned by a country.
The system was efficient for several years , when it was used in one form or another, in many countries throughout the world. Nevertheless it was supposed only to guarantee the equilibrium of the economy, not allowing it to develop. An economical boost meant an increase in the demand for products. The cost of producing them remained the same because the national gold reserve was not richer than before. So, low quality products would appear on the market.
The gold standard was used in different ways throughout the time. During the Byzantine Empire they had the gold specie standard, because they used a gold coin. The gold exchange standard appeared in the nineteenth century, when different countries like the British India, decided to establish the value of their silver coins in relation to the gold standards in the United Kingdom and the USA. The gold bullion standard was its last manifestation and it meant that gold bullion could be sold at a fixed price.
The present economy is characterized by an increasing demand of money. That is the reason which makes the existence of a gold standard impossible. The fact that the national gold reserves have not changed much in the past years is another reason, because that gold is not enough to be translated into currency. The big advantage that government couldnt increase prices according to their desire is still to be remembered.
