An Explanation Of The Gold Standard!_37803
The gold standard is a system of using gold as the root of a monetary system. This monetary system has been used in almost every country in the world at one point or another. There are three different ways that gold can be used within a monetary system. These three ways include the gold specie standard, the gold exchange standard and the gold bullion standard.
Gold Specie Standard
The gold specie standard was used mainly in the Byzantine Empire. Later it was used in the British West Indies and then Britain. When Britain switched to this type of gold standard, the rest of the civilized world was using the silver standard, but most soon followed Britain to begin using gold.
The gold specie standard is when an actual gold coin or other currency was used as the main monetary system. For example, the USA used the American Gold Eagle and Germany used the gold mark.
Gold Exchange Standard
The gold exchange standard is when the currency used is backed by actual gold. The currency used may not be gold, but the currency has a value equivalent to gold. This type of gold standard started being used towards the end of the nineteenth century and the beginning of the twentieth century. Countries that were still using the silver standard starting adapting their currency to the gold standard by equat ing their silver coins to the gold of the U.S. and Britain.
Gold Bullion Standard
The gold bullion standard started around World War I as treasury notes started to replace the current currency in circulation. This gold standard is when the government agrees to sell gold bullion for currency upon request by citizens. It did not last too long since economic issues soon led most countries to abandon gold standards completely.
Abandoning the System
There have been many situations throughout history where countries have been forced through economic hardship to suspend the use of the gold standard. Most of these situations were the result of war. Instead of using gold, countries would use treasury notes or something similar as the basis of its monetary system. This was most dominant during the Great Depression when countries started converting to new systems to help get them out of the economic slump.
Eventually better monetary systems were adopted and countries started using these other systems instead of the standard even when there was no war or other economic issues. Today most countries use a monetary system called fiat money. It is rare that any country today has enough gold reserve to cover all the currency that is in circulation. The world market relies upon the value of the U.S. dollar as the basis for the monetary systems in each country.
There is some movement to try to reestablish a monetary system that uses gold. Some countries are considering returning to gold since there are some concerns about the value and stability of the U.S. dollar. There is a lot of discussion and plenty of opinions on the matter, so it remains to be seen if the gold standard will ever become the standard again.
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