The Gold Standard Essay

Submitted By Ranger1976
Words: 462
Pages: 2

The Gold Standard

At the onset of international commerce and trade, gold was the purchasing power that was most valued and common to all nations. Nations that traded in gold could rely on the precious metal's longevity, unlike manufactured currency, which held a much shorter shelf life. Additionally, gold could be broken down into various mediums which was conducive for purchases of all types. The international purchasing power of gold eventually led to the gold standard, a fixed-rate exchange system by which a nation fixed the value of its currency to a fixed amount (in this case one ounce), of gold. There are many advantages to operating under a fixed-rate exchange such as the gold standard. First, there was much less deviation in exchange rates between countries, thereby lessing the risks and costs in trade and stimulating growth. Second, the system essentially forced nations to be able to back up their currency in reserves of gold, which assisted in controlling inflation. Finally, the fixed-rate exchange system allowed for an almost automatic correction in any trade imbalances, whether the imbalance was supply or demand, inbound or outbound (Wild and Wild, 2014). The gold standard was a very good system for economies to operate by until the onset of World War I. Due to a massive need for purchasing power, countries began creating an influx of currency and essentially devalued the currency and any hope of stable exchange rate for gold. In the 1930s, reinstituting the system became problematic for the United States, because the devaluation of the currency had in turn increased the price of US imports and lowered the export earnings of certain nations. The Bretton Woods Agreement

In 1944, an initiative to create a new international monetary system was proposed and accepted by several nations. The intent…