Gold Standard

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Overview

The Gold Standard is a monetary system in which the standard economic unit of account is a fixed weight of gold and all currency issuance is regulated by the gold supply. Currencies that are backed by fixed amounts of gold have a constant exchange rate between each other.

Purposes of a gold standard

- To prevent inflationary expansion of the money supply
- To maintain a fixed value against which other prices can be measured
- To allow wider circulation with greater trust in the stability of money.

Why Pick Gold As The Standard?

- First known metal. Valuable throughout the ages because of scarcity. High value for its beauty and resistance to corrosion and rust.
- Soft and easy to work with (very malleable and can be easily shaped into various forms). As a result, gold had long been used as a form of money and store of wealth by merchants and traders.
- Its versatility for many applications, such as jewelry and adornment. Means of payment of armies.
- Supplant silver as the basic unit of international trade at various times (Islamic Golden Age, peak of Italian trading during the Renaissance, during the 19th century).
- Remain the metal of monetary reserve accounting until the collapse of the Bretton Woods agreement in 1971.

How the Gold Standard Works

The gold standard was a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price.

Theory of Gold Standard

- Rest on the idea that inflation is caused by an increase in the quantity of money, an idea advocated by David Hume, and that uncertainty over the future purchasing power of money lowers business confidence and leads to reduced trade and capital investment.
- The gold standard would remove uncertainty, friction between kinds of currency, which will dramatically benefit an economy. - Advocates of the gold standard often believe that the governments are destructive of economic activity, and that a gold standard, by reducing their ability to intervene in markets, will increase personal liberty and economic vitality.

Gold Standard History

Effect on the Great Depression

Bretton Woods Conference

International Gold Standard

Performance of Gold Standard

Pros and Cons of Gold Standard

Group: Minh, Dan, Nick

Works Cited

http://en.wikipedia.org/wiki/Gold_standard