What 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.

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. 

Related Topics

• Legal Tender
• Numismatics
• Gresham's Law
• Barter
• Double Coincidence of Wants
• Parity
• Functions of Money
• Medium of Exchange
• Unit of Account
• Store of Value
• Time Value of Money
• Standard of Deferred Payment
• Liquidity Preference Theory
• National Savings and Investment Identity
• Circular Flow of Money
• Commodity Money
• Gold Exchange Standard
• Bretton Woods System
• Fiat Money
• Money Supply
• M1 and M2 Money Supply
• Monetary Base
• Savings, Demand, and Time Deposits
• Banks
• How Do Banks Create Money? 
• Financial Intermediary
• Bank Balance Sheet
• Money Multiplier Formula
• Velocity of Money
• Multiplier Effect
• Quantity Equation of Money
• McCallum Rule
• Neutrality of Money
• Real Bills Theory
• Banking System?
• Central Bank
• Federal Reserve System
• Federal Open Market Committee (FOMC)
• Fed Balance Sheet
• Term Auction Facility
• Taylor Rule
• How is the Federal Reserve Bank Organized?
• What is Bank Regulation?
• CAMELS Rating
• FDIC
• CFPB
• Bank Supervision
• Bank Runs
• What is Deposit Insurance?
• Federal Deposit Insurance Corporation
• Lender of Last Resort
• Central Banks Carry Out Monetary Policy
• Open Market Operations
• Bank Reserve
• Discount Rate
• Federal Funds Rate
• Monetary Policy
• Contractionary and Expansionary Monetary Policy
• Loose vs Tight Monetary Policy
• Easy Monetary Policy 
• Accommodative Monetary Policy
• Dove & Hawk (Monetary Policy) - Explained
• Tight Monetary Policy - Explained
• Stabilization Policy
• Pushing on a String
• The Effect of Monetary Policy on Interest Rates
• Federal Funds Rate
• Gibson Paradox
• Vasicek Interest Rate Model
• Equation of Exchange (Economics)
• The Effect of Monetary Policy on Aggregate Demand
• Quantitative Easing
• Reserve Currency
• What are Excess Reserves?
• Unpredictable Movements of Velocity
• Central Banks - Unemployment and Inflation
• Inflation Targeting
• Fisher Effect
• Asset Bubbles and Leverage Cycles
• Countercyclical
• Money Capital Market
• Quantity Theory of Money
• Aggregate Expenditure Model
• IS-LM Model
• European Capital Market Institute