Woman World Web

December 2nd, 2009 by Jack Wagon

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.

The era of the gold standard merely started from England, in 1790s due to a shortage of silver, which compelled them to use Gold coins instead of silver. Later on, the Bank Charter Act in’44, made gold as the legal standard of selling, and buying currencies.

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 demand and supply of any currency was regulated through the gold standard, which also kept the supply stable. All exchange rates, meaning the value of a currency in relation to the currency of another country were calculated through the gold standard.

Hence, all over the world, a fixed exchange was followed, which reduced the insecurity of the economy. Even the price increase was controllable since the government could not form any inflationary pressures by floating the currency in the market.

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.

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.

Jack Wagon is a gold investment consultant. Learn how to buy gold in the times of recession. For more information visit his recommended website at http://www.goldmadesimple.com/.