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.
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.
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.
All currencies moved together, and the gold standard led to a fixed exchange rate all over. All doubts in economy were removed, and even inflation could be controlled since governments could not float currency in the market to build pressure.
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.
Apart from this, to be a part of the monetary system, all participants were required to abide by certain regulations, which were not convenient for all countries. They were bound to change exchange rates as per the fixed rate, and most of them did not follow this. Even unemployment rate was at its peak, and all the countries, which produced gold, had huge demands on them.
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.
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