Gold Exchange Standard - Explained
What is the Gold Standard?
Written by Jason Gordon
Updated at June 29th, 2021
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Table of Contents
What is the Gold Standard?Why is the Gold Standard Important?Academic Research on the Gold StandardWhat is the Gold Standard?
The Gold Standard is an exchange system for money or currency that is secured or backed by gold. Countries using this gold exchange standard system has a fixed-rate for this gold and does business with this fixed rate. The gold standard system was last used by the United State of America in 1971. The British government stopped using the Gold Standard in 1931. Both countries replaced the Gold Standard with a fiat currency system. The fiat currency system dominates the world today.
Back to: ECONOMIC ANALYSIS & MONETARY POLICY
Why is the Gold Standard Important?
The objective of the gold standard is to prevent inflation and to provide certainty in the market. Basically, the populace can feel confident in the value of a countries currency if the currency represents and can be readily exchanged for a certain amount of gold. In 1933, the US moved away from the Gold Standard. The US population traded in gold currency for fiat currency issued by the US Government. The currency, however, was still backed by the possession of gold. The dollar could readily be exchanged for gold. In 1944, the US formalized this model as a signatory of the Bretton Woods Agreement. This agreement was negotiated among 44 countries to create a new financial and monetary system. In 1971, the truly split from the gold standard. At this point, the US dollar could no longer be exchanged for gold and was no longer pegged to gold prices.
Academic Research on the Gold Standard
- The stability of the interwar gold exchange standard: Did politics matter?, Wandschneider, K. (2008). The Journal of Economic History, 68(1), 151-181. This article examines the politics associated with the gold standard and its stability between WWI and WWII
- The inter-war gold exchange standard: credibility and monetary independence, Bordo, M. D., & MacDonald, R. (2003). Journal of International Money and Finance, 22(1), 1-32. This article examines the credibility of the system and how it affected the ability of central banks to pursue independent monetary policies.
- The Gold-exchange standard and the great depression, Eichengreen, B. (1987). This article examines the contribution the Gold Standard had to the descent of the US and world into a global economic depression.
- The gold exchange standard in the light of experience, Conant, C. A. (1909). The Economic Journal, 19(74), 190-200. This article looks at the historical use of the gold standard.
- The Establishment of the gold exchange standard in the Philippines, Kemmerer, E. W. (1905). The Quarterly Journal of Economics, 19(4), 585-609. This article looks at the use of the gold standard within the Phillipean economy.
- The gold-exchange standard, Laughlin, J. L. (1927). The Quarterly Journal of Economics, 41(4), 644-663. This article is an early examination of the Gold Standard within the US system.
- KEY CURRENCIES AND THE GOLD EXCHANGE STANDARD, 1900-1913., Lindert, P. H. (1968). This study looks at various world currencies and the role of the Gold Standard in their interrelationship.
- The report on Indian finance and currency in relation to the gold exchange standard, Nicholson, J. S. (1914). The Economic Journal, 24(94), 236-247. This article is an early examination of the effect of finances in the country of India and the effect of the gold exchange standard.
- The Collapse of the Gold Exchange Standard, Mundell, R. A. (1968). American Journal of Agricultural Economics, 50(5), 1123-1134. This article examines the underpinning of the collapse and ultimate demise of the Gold Standard.
- The Price-Specie-Flow Mechanism and the Gold-Exchange Standard, Courchene, T. J. (2013, July). The Price-Specie-Flow Mechanism and the Gold-Exchange Standard. In The Economics of Common Currencies (Collected Works of Harry Johnson): Proceedings of the Madrid Conference on Optimum Currency Areas (p. 65). Routledge.
- The Bretton Woods system as a gold exchange standard, Iwami, T. (1995). In Japan in the International Financial System (pp. 1-35). Palgrave Macmillan, London. This chapter examines the history of the change from the Gold standard and the effect on the international system.
- Restrictions On The Forward Exchange Market: Implications Of The GoldExchange Standard, Williams, E. C. (1968). The Journal of Finance, 23(5), 899-900. This early look focuses on the effect of regulations of the forward exchange market and the effects on the Gold Standard system.