Gold Standard

Submitted by Aparna raj.v.r .
Introduction.
Gold standard.
Advantages of gold standard. Disadvantages of gold standard.
Conclusion.
The gold standard emerged during the 19th century.
It become full fledged during the forty years from the beginning
of the1870s to the outbreak of the 1st world war in 1914. The leading countries tried to revive the gold standard in the 1920s.The system collapsed with great depression in the beginning of 1930s. The main objective of economic policy under the gold standard was to keep the balance of payments in equilibrium, so that here was no change in the reserves of gold and foreign currency. The main instrument for this was monetary policy, so that the dominant authority handling economic policy in those days was the central bank.
So long as the supply of gold does not change too quickly, then the supply of money will stay relatively stable.
The gold standard prevents a country from printing too much
money. If the supply of money rises too fast, then people will exchange money for gold.
A gold standard restricts the Federal Reserve from enacting
policies which significantly alter the growth of the money supply which in turn limits the inflation rate of a country. The gold standard also changes the face of the foreign exchange market.
The gold standard is a monitory system in which the standard
economic unit of account is a fixed mass of gold.

The gold specie standard is a system in which the monetary unit
is associated with circulating gold coins, or with the unit of value defined in terms of one particular circulating gold coin in conjunction with subsidiary coinage made from a lesser valuable metal.
The gold exchange standard typically involves the circulation of
only coins made of silver or other metals, but where the authorities guarantee a fixed exchange rate with another country that is on the gold standard.
The gold specie standard was not designed, but rather arose out
of a general acceptance that gold was useful as a universal currency. For these reasons, it existed not just in modern states, but in some of the great empires of earlier times.
In modern times the British west indies was one of the first
regions to adopt a gold specie standard. Later it adopted by many other countries like Australia, New Zealand,etc
Under the gold standard, each nation defines the gold content of
its currency and passively stands ready to buy or sell any amount of gold at that price. Since the gold content in one unit of each currency is fixed, exchange rates are also fixed.
Gold was a common form of money due to its rarity, durability,
divisibility, fungibility and ease of identification often in conjunction with silver. Silver was typically the main circulating medium, with gold as the metal of monetary reserve.
Representative money and the gold standard protect citizens
from hyper inflation and other abuses of monetary policy.
Long-term price stability has been described as the great virtue
of the gold standard. Under the gold standard, high levels of inflation are rare, and hyper inflation is nearly impossible as the money supply can only grow at the rate that the gold supply increases.
The gold standard limits the power of governments to inflate
prices through excessive issuance of paper currency. It provides fixed international exchange rates between those countries that have adopted it, and thus reduces uncertainty in international trade.
The gold standard makes chronic deficit spending by
governments more difficult, as it prevents governments from inflating away the real value of their debts.
A central bank cannot be an unlimited buyer of last resort of
government debt. A central bank could not create unlimited quantities of money at will, as there is a limited supply of gold.
An advantage of the gold standard is that it stabilizes world
trade. Different currencies have different values relative to each other. These exchange rates can fluctuate wildly depending on economic conditions.
Limited supply of gold. It restricts the ability of governments to make economic policy. A common practice during tough economic times is to increase the money supply to stimulate the economy. This would not be possible under the gold standard since currency supply is limited by the gold supply. Currency can only be increased as more gold is mined or purchased. Although the gold standard gives long-term price stability, it does in the short term bring high price volatility. It did not allow policy makers to stimulate the economy through a monetary stimulus.
Gold was a common form of money due to its rarity,
durability,
divisibility, fungibility, and ease of identification.

Representative money and the gold standard protect citizens
from hyperinflation and other abuses of monetary policy.

The gold standard limits the power of governments to inflate
prices through excessive issuance of paper currency. It provides fixed international exchange rates between those countries that have adopted it, and thus reduces uncertainty in international trade.

Gold Standard

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Submitted by Aparna raj.v.r .

The gold standard emerged during the 19th century.

The gold standard is a monitory system in which the standard

economic unit of account is a fixed mass of gold.

Gold was a common form of money due to its rarity, durability,

from hyper inflation and other abuses of monetary policy.

Long-term price stability has been described as the great virtue

The gold standard makes chronic deficit spending by

Gold was a common form of money due to its rarity,

divisibility, fungibility, and ease of identification.

from hyperinflation and other abuses of monetary policy.

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