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The Gold Standard

Mon, 03/26/2018 - 17:51

A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. Three types can be distinguished: specie, bullion, and exchange.

In the gold specie standard the monetary unit is associated with the value of circulating gold coins, or the monetary unit has the value of a certain circulating gold coin, but other coins may be made of less valuable metal.

The gold bullion standard is a system in which gold coins do not circulate, but the authorities agree to sell gold bullion on demand at a fixed price in exchange for the circulating currency.

The gold exchange standard usually does not involve the circulation of gold coins. The main feature of the gold exchange standard is that the government guarantees a fixed exchange rate to the currency of another country that uses a gold standard (specie or bullion), regardless of what type of notes or coins are used as a means of exchange. This creates a de facto gold standard, where the value of the means of exchange has a fixed external value in terms of gold that is independent of the inherent value of the means of exchange itself.

Most nations abandoned the gold standard as the basis of their monetary systems at some point in the 20th century, although many hold substantial gold reserves. A survey of leading American economists showed that they unanimously reject that a return to the gold standard would benefit the average American.