Gold Exchange Standard - Explained
What is the Gold Standard?
Written by Jason Gordon
Updated at April 24th, 2022
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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.
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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.
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