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For other uses, see Gold standard (disambiguation).

The gold standard is a monetary system in which a region's common media of exchange are paper notes which receive substantial premia because they are normally freely convertible into fixed quantities of gold. Under a gold standard, money issuers normally stand willing to redeem their notes, upon demand, for pre-set, intertemporally constant, fixed amounts of gold. The gold standard is not currently used by any government, having been replaced completely by fiat currency, and private currencies backed by gold are rare. The terms fiat currency and fiat money relate to types of currency or Money whose usefulness results not from any intrinsic value or guarantee that it can be

Gold standards should not be confused with their historical predecessor, "gold-coin standards," wherein taxes are payable in either gold coins or overvalued, government-minted, less expensive, coins.

The main purpose of either government money system has historically been to provide seigniorage, or money-creation profit, to governmental leaders in order to provide them with general purchasing power during emergencies, especially those leaders who are legislatively constrained and therefore unable to raise taxes in order to execute the defense commitments that are required for the survival of their states (Thompson, 1974. )

Gold standards replaced gold-coin standards in the 17th-19th centuries in the West as the extent of defensive warfare expanded to where the gold-coin standards were no longer sufficient to the task. A similar history generated a gold standard in China from the 9th through the early 17th century.

Contents

Early gold-coin standards

See also: History of the English penny
Gold coin of Alexander the Great, ca. 330 BC
Gold coin of Alexander the Great, ca. 330 BC

Government-minted gold and silver coins were first were used in ancient Lydia in the late 7th century B. Defining Lydia Aside from a legend related by Herodotus, who states that the name Lydia came from king Lydus at the time of the fall of Troy C. The burgeoning democratic city-states of Classical Greece soon thereafter introduced similar gold-coin standards, which rapidly spread Westward to most of the city-states republics, including Rome. In the heyday of the Athenian empire, the city's silver tetradrachm was the first coin to achieve "international standard" status in Mediterranean trade. The Delian League was an association of approximately 150 5th-century BC Greek City-states under the leadership of Athens, whose purpose was to continue The tetradrachm (τετράδραχμον was an Ancient Greek silver coin equivalent to four drachms It was in wide circulation from 510 to 38 BCE Silver remained the most common monetary metal used in ordinary transactions until the 20th century.

Aureus minted in 193 by Septimius Severus
Aureus minted in 193 by Septimius Severus

The Persian Empire collected taxes in gold and minted its own gold coin, known in the West as the δαρεικός, dareikos in Greek, or daricus in Latin. Events By Place Roman Empire January 1 — Pertinax is proclaimed Roman Emperor. Lucius Septimius Severus (or rarely Severus I) ( April 11 145 - February 4 211) was a Roman general and Roman Emperor The Persian Empire was a series of Iranian empires that ruled over the Iranian plateau, the original Persian homeland and beyond in Western Asia Greek (el ελληνική γλώσσα or simply el ελληνικά — "Hellenic" is an Indo-European language, spoken today by 15-22 million people mainly Latin ( lingua Latīna, laˈtiːna is an Italic language, historically spoken in Latium and Ancient Rome. When Persia was conquered by Alexander the Great, this gold became the basis for the gold coinage of Alexander's Macedon empire and those of his Diadochi. The vast gold hoard of the Persian kings was put into monetary circulation, triggering the first known "worldwide" inflation event. In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time

Solidus of Justinian II, ca. 705
Solidus of Justinian II, ca. Justinian II (Ιουστινιανός Β΄ Ioustinianos II; 669&ndashDecember 711 known as Rinotmetos or Rhinotmetus (Ρινότμητος 705

Ancient Rome minted two important gold coins: the aureus, which was ~7 grams of gold alloyed with silver, and the smaller solidus, which weighed 4. The aureus (pl aurei) was a Gold coin of Ancient Rome valued at 25 silver denarii. For other uses of the words gram or gramme see Gram (disambiguation. An alloy is a Solid solution or Homogeneous mixture of two or more elements, at least one of which is a Metal, which itself has The solidus (the Latin word for solid) was originally a Gold coin issued by the Romans. 4 grams, of which 4. 2 was gold. Roman and Byzantine coins were frequently alloyed with other metals of much lower value to create the seigniorage necessary for a rational system of government money.

After the Roman Emperor Gallienus, who ruled from 253 to 268 introduced a monetary reform in which surface-overvalued coins were no longer accepted for tax payments, war inflation became symptomatic of the Empire's new and fatal flaw. For the surface overvaluation of an emergency coinage would soon degenerate to where the coinage simply traded for its metallic value, thereby eliminating the ability of the senate-constrained government to collect seigniorage at critical times. Remarkably, the flaw was not repaired until after the fall of the Empire and the times of Justinian in the East and Theodoric the Great, the first of the Germanic (Ostrogothic) emperors in the West.

The dinar and dirham were gold and silver coins, respectively, originally minted by the Persians. The Dinar is the name of the official currency in several countries Dirham or dirhem (درهم is a unit of currency in several Arab nations and formerly the related unit of mass (the Ottoman dram) in the Ottoman Empire The Caliphates in the Islamic world adopted these coins, starting with Caliph Abd al-Malik (685–705). A caliphate (from the Arabic خلافة or khilāfa) is the political leadership of the Muslim community in classical and medieval Islamic history For other meanings including people named 'Islam' see Islam (disambiguation. Abd al-Malik ibn Marwan (646-705 (عبد الملك بن مروان was the 5th Umayyad Caliph.

Sequin (Venetian ducat), 1382
Sequin (Venetian ducat), 1382

In 1284 the Republic of Venice coined the ducat, its first solid gold coin. The Most Serene Republic of Venice ((Serenìsima Repùblica Vèneta or Repùblica de Venesia Serenissima Repubblica The ducat (ˈdʌkət is a Gold coin that was used as a trade currency throughout Europe before World War I. Other coins, the florin, noble, grosh, złoty, and guinea, were also introduced at this time by other European states to facilitate growing trade. The Noble was the first English Gold coin produced in quantity having been preceded by the Gold penny and the Florin earlier in the reigns of Groschen (Grossus Groschen grossone groš grosz garas гроші, грош grosh, gros грош was the (sometimes colloquial name for a Coin The złoty (/ˈzwɔtɨ/, plural for numbers ending in 2 3 and 4 (except 12 13 and 14 złote /ˈzwɔtɛ/ plural for all other numbers złotych /ˈzwɔtɨx/ The guinea coin of 1663 was the first English machine-struck Gold coin.

Beginning with the conquest of the Aztec and Inca Empires, Spain had access to stocks of new gold for coinage in addition to silver. Aztec is a term used to refer to certain ethnic groups of central Mexico, particularly those groups who spoke the Nahuatl language and who achieved political The Inca Empire (or Inka Empire) was the largest empire in Pre-Columbian America. Spain () or the Kingdom of Spain (Reino de España is a country located mostly in southwestern Europe on the Iberian Peninsula. The wide availability of milled and cob gold coins made it possible for the West Indies to make gold the only legal tender in 1704. The Caribbean (ˌkærəˡbiən kæ'rəbiən Cariben|Caraïben or Caraïben; Caraïbe or more commonly Antilles; Caribe is a Region consisting The circulation of Spanish coins was later to create the unit of account for the United States, the "dollar", based on the Spanish silver real, and Philadelphia's currency market was to trade in Spanish colonial coins.

The crisis of silver currency and bank notes (1750–1870)

In the late 18th century wars and trade with China, which sold many trade goods to Europe but had little use for European goods, drained silver from the economies of Western Europe and the United States. China ( Wade-Giles ( Mandarin) Chung¹kuo² is a cultural region, an ancient Civilization, and depending on perspective a National Western Europe at its most general meaning means 'all the countries in the West of Europe ' The United States of America —commonly referred to as the Coins were struck in smaller and smaller amounts, and there was a proliferation of bank and Demand Notes used as money. This article is about the Demand Notes issued by the US government

In the 1790s Britain suffered a massive shortage of silver coinage and ceased to mint larger silver coins. It issued "token" silver coins and overstruck foreign coins. With the end of the Napoleonic Wars, Britain began a massive recoinage program that created standard gold sovereigns and circulating crowns, half-crowns, and eventually copper farthings in 1821. The Napoleonic Wars (1803-1815 involved Napoleon's French Empire and a shifting set of European allies and opposing coalitions In 1833, Bank of England notes were made legal tender, and redemption by other banks was discouraged. In 1844 the Bank Charter Act established that Bank of England notes, fully backed by gold, were the legal standard. The Bank Charter Act 1844 (7 & 8 Vict c 32 was an Act of the Parliament of the United Kingdom, passed under the government of Robert Peel, which restricted According to the strict interpretation of the gold standard, this 1844 Act marks the establishment of a full gold standard for British money.

There were 113 grains (7. In many cultures a grain is a unit of measurement of Mass that is based upon the mass of a single seed of a typical Cereal. 32g) of gold to one pound sterling. The Pound Sterling ( symbol £; ISO code: GBP) subdivided into 100 pence (singular penny) is the Currency

The U. S. adopted a silver standard based on the "Spanish milled dollar" in July 1785. The silver standard is a Monetary system in which the standard economic Unit of account is a fixed weight of Silver. History Spain Following the introduction of the Guldengroschen in Austria in 1486 the concept of a large silver coin with high purity (sometimes known as "specie" This was codified in the 1792 Mint and Coinage Act. The Coinage Act or the Mint Act, passed by the United States Congress on April 2, 1792, established the United States Mint and regulated This began a long series of attempts for United States to create a bimetallic standard for the US Dollar, which was to continue until the 1930s. In Economics, bimetallism is a Monetary standard in which the value of the Monetary unit can be expressed as a certain amount of gold or as a certain amount The United States dollar ( sign: $; code: USD) is the unit of Currency of the United States; it has also been Because of the huge debt taken on by the US Federal Government to finance the Revolutionary War, silver coins struck by the government left circulation, and in 1806 President Jefferson suspended the minting of silver coins. Debt is that which is owed usually referencing Assets owed but the term can cover other obligations In this article the inhabitants of the thirteen colonies that supported the American Revolution are primarily referred to as "Americans" with occasional references to "Patriots" Thomas Jefferson (April 13 1743 – July 4 1826 was the third President of the United States (1801–1809 the principal author of the Declaration of Independence The US Treasury was put on a strict "hard money" standard, doing business only in gold or silver coin as part of the Independent Treasury Act of 1846, which legally separated the accounts of the Federal Government from the banking system. The United States Department of the Treasury is a Cabinet department and the Treasury of the United States government. A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Following Gresham's law, silver poured into the US, which traded with other silver nations, and gold moved out. Gresham's law is commonly stated "Bad money drives out good In 1853, the US reduced the silver weight of coins, to keep them in circulation.

Establishment of the international gold standard

When Germany became a unified country following the Franco-Prussian War; it established the mark. Germany, officially the Federal Republic of Germany ( ˈbʊndəsʁepuˌbliːk ˈdɔʏtʃlant is a Country in Central Europe. The Franco-Prussian War or Franco-German War, often referred to in France as the 1870 War ( 19 July, 1870 — 10 May, 1871 The Goldmark (officially just Mark) is the name used for the currency of the German Empire from 1873 to 1914 Rapidly most other nations followed suit. Gold became a transportable, universal and stable unit of valuation, and the world's dominant economy, the United Kingdom, had a longstanding commitment to the gold standard. [1] See Globalization. Globalization (or globalisation) in its literal sense is the process of transformation of local or regional phenomena into global ones

Dates of adoption of a gold standard

Throughout the post-Civil War decade of the 1870s deflationary and depressionary economics created periodic demands for silver currency. Deflation is the opposite of Inflation. Therefore under the usual contemporary definition of inflation 'deflation' means a decrease in the general price level. In Economics, a depression is a term commonly used for a sustained downturn in one or more national economies However, such attempts generally failed, and continued the general pressure towards a gold standard. By 1879, only gold coins were accepted through the Latin Monetary Union, composed of France, Italy, Belgium, Switzerland and later Greece, even though silver was, in theory, a circulating medium. The Latin Monetary Union ( LMU) was a 19th century attempt to unify several European currencies into a single currency that could be This article is about the country For a topic outline on this subject see List of basic France topics. Italy (Italia officially the Italian Republic, (Repubblica Italiana is located on the Italian Peninsula in Southern Europe, and on the two largest The Kingdom of Belgium is a Country in northwest Europe. It is a founding member of the European Union and hosts its headquarters as well as those Switzerland (English pronunciation; Schweiz Swiss German: Schwyz or Schwiiz Suisse Svizzera Svizra officially the Swiss Confederation Greece (Ελλάδα transliterated: Elláda, historically, Ellás,) officially the Hellenic Republic (Ελληνική Δημοκρατία

Gold standard from peak to crisis (1901–1932)

Suspending gold payments to fund the war

As in previous major wars under its gold standard, the British government suspended the convertibility of Bank of England notes to gold in 1914 to fund military operations during World War I. Her Majesty's Government, or when the monarch is male His Majesty's Government, is the title used by the Government of the United Kingdom, based at World War I (abbreviated WWI; also known as the First World War, the Great War, and the War to End All By the end of the war Britain was on a series of fiat currency regulations, which monetized Postal Money Orders and Treasury Notes. The terms fiat currency and fiat money relate to types of currency or Money whose usefulness results not from any intrinsic value or guarantee that it can be The government later called these notes banknotes, which are different from US Treasury notes. Treasury securities are Government bonds issued by the United States Department of the Treasury through the Bureau of the Public Debt. The United States government took similar measures. After the war, Germany, having lost much of its gold in reparations, could no longer coin gold "Reichsmarks" and moved to paper currency, although the Weimar Republic later introduced the "rentenmark" and later the gold-backed reichsmark in an effort to control hyperinflation. The term Weimar Republic ( ˈvaɪmarɐ repuˈbliːk is used by historians to signify the democratic and Republican period of Germany from 1919 to 1933 The Rentenmark (literally " Security Mark" ( RM) was a Currency issued on 15 November 1923 to stop the Hyperinflation For a detailed discussion of the English translation of Reich, see Reich. Certain figures in this article use Scientific notation for readability

Also as in previous major wars under the gold standard, the UK was returned to the gold standard in 1925, by a somewhat reluctant Winston Churchill. Sir Winston Leonard Spencer-Churchill, KG, OM, CH, TD, FRS, PC, PC (Can ( 30 November 1874 Although a higher gold price and significant inflation had followed the wartime suspension, Churchill similarly followed tradition by resuming conversion payments at the pre-war gold price. For five years prior to 1925 the gold price was managed downward to the pre-war level, causing deflation throughout those countries of the British Empire and Commonwealth using the Pound Sterling. The Pound Sterling ( symbol £; ISO code: GBP) subdivided into 100 pence (singular penny) is the Currency But the rise in demand for gold for conversion payments that followed the similar European resumptions from 1925 to 1928 meant a further rise in demand for gold relative to goods and therefore the need for a lower price of goods because of the fixed rate of conversion from money to goods. Because of these price declines and predicatable depressionary effects, the British government finally abandoned the standard September 20, 1931. Events 451 - The Battle of Chalons takes place in North Eastern France. Sweden abandoned the gold standard in October 1931; and other European nations soon followed. "Sverige" redirects here For other uses see Sweden (disambiguation and Sverige (disambiguation. Even the U. S. government, which possessed most of the world's gold, moved to cushion the effects of the Great Depression by raising the official price of gold (from about $20 to $35 per ounce) and thereby substantially raising the equilibrium price level in 1933-4.

Depression and World War II

British hesitate to return to gold standard

During the 1939–1942 period, the UK depleted much of its gold stock in purchases of munitions and weaponry on a "cash and carry" basis from the U. The policy of cash and carry during the onset of World War II in 1939 revised the Neutrality Acts that were established by US President Roosevelt. S. and other nations. This depletion of the UK's reserve convinced Winston Churchill of the impracticality of returning to a pre-war style gold standard. John Maynard Keynes, who had argued against such a gold standard, became increasingly influential. John Maynard Keynes 1st Baron Keynes CB (ˈkeɪnz "cains" (5 June 1883 &ndash 21 April 1946 was a British Economist whose ideas Nevertheless, his theories were rejected in 1944 Bretton Woods Agreement, which established the IMF and an international gold standard based on convertibility of the various national currencies into a U. The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states S. dollar that was in turn convertible into gold.

Post-war international gold standard (1946–1971)

Main article: Bretton Woods system

Advantages

Without a gold standard, governments can print as much money as they want, destroying wealth through inflation. A German woman in 1924 feeding a stove with currency notes, which burn longer than the amount of firewood they can buy.
Without a gold standard, governments can print as much money as they want, destroying wealth through inflation. The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states A German woman in 1924 feeding a stove with currency notes, which burn longer than the amount of firewood they can buy.

The history of money consists of three phases: commodity money, in which actual valuable objects are bartered; then representative money, in which paper notes (often called 'certificates') are used to represent real commodities stored elsewhere; and finally fiat money, in which paper notes are backed only by use of' "lawful force and legal tender laws" of the government, in particular by its acceptability for payments of debts to the government (usually taxes). Commodity money is Money whose value comes from a Commodity out of which it is made Representative money refers to Money that consists of Token coins other physical tokens such as certificates and even non-physical "digital certificates" The terms fiat currency and fiat money relate to types of currency or Money whose usefulness results not from any intrinsic value or guarantee that it can be

Commodity money is inconvenient to store and transport and is subject to hoarding. Hoarding is the storing of food or other goods or money Hoarding of food is a natural behaviour in certain species of animals [3] It also does not allow the government to control or regulate the flow of commerce within their dominion with the same ease that a standardized currency does. As such, commodity money gave way to representative money, and gold and other specie were retained as its backing.

Gold was a common form of representative money due to its rarity, durability, divisibility, fungibility, and ease of identification,[4] often in conjunction with silver. Fungibility is the property of a good or a Commodity whose individual units are capable of mutual substitution Silver was typically the main circulating medium, with gold as the metal of monetary reserve. The primary advantage of gold or silver backed currency is it self regulates. Therefore there is no government tinkering with the boom and bust cycles that accompany fiat-based currency.

The Gold Standard variously specified how the gold backing would be implemented, including the amount of specie per currency unit. The currency itself is just paper and so has no innate value, but is accepted by traders because it can be redeemed any time for the equivalent specie. A US silver certificate, for example, could be redeemed for an actual piece of silver. Silver Certificates were printed for a time in the United States as a form of Paper currency.

Representative money and the Gold Standard protect citizens from hyperinflation and other abuses of monetary policy, as were seen in some countries during the Great Depression. Certain figures in this article use Scientific notation for readability Monetary policy is the process by which the Government, Central bank, or monetary authority of a country controls (i the Supply of Money, However, they were not without their problems and critics, and so were partially abandoned via the international adoption of the Bretton Woods System. The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states That system eventually collapsed in 1971, at which time all nations had switched to full fiat money. The terms fiat currency and fiat money relate to types of currency or Money whose usefulness results not from any intrinsic value or guarantee that it can be

Former US Federal Reserve Chairman Alan Greenspan once argued, before the advent of monetarism, that

"under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. Alan Greenspan (born March 6 1926 in New York City) is an American Economist and was from 1987 to 2006 the Chairman of the Federal Reserve of Monetarism is a school of economic thought concerning the determination of national income and monetary Economics. . . The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. . . In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. "[5]

Disadvantages and Rebuttals

Theory

The theory of the gold standard rests on the idea that maximal increases in governmental purchasing power during wartime emergencies require post-war deflations, which would not occur without monetary institutions like the gold standard, which insist upon return to pre-war price-levels and therefore deflationary wartime expectations (Thompson, 1995).

Differing definitions of gold standard

If the monetary authority holds sufficient gold to convert all circulating money, then this is known as a 100% reserve gold standard, or a full gold standard. In some cases it is referred to as the Gold Specie Standard to more easily separate it from the other forms of gold standard that have existed at various times. The 100% reserve standard is generally considered unworkable because the quantity of gold in the world is too small a quantity of money to sustain current worldwide economic activity and the "right" quantity of money (i. e. one that avoids either inflation or deflation) is not a fixed quantity, but varies continuously with the level of commercial activity. The currencies or banknotes having Gold standard are the old German Reichsmarks, Yugoslavia Dinars, Turkish Liras, Brazil Cruzeiros, Croatia Dinars, Poland Zlotych, Argentina Peso Leys, Angola Kwanzas reajastodos, Zaire Zaires and Bolivia Bolivanos.

In an international gold-standard system, which may exist in the absence of any internal gold standard, gold or a currency that is convertible into gold at a fixed price is used as a means of making international payments. Under such a system, when exchange rates rise above or fall below the fixed mint rate by more than the cost of shipping gold from one country to another, large inflows or outflows occur until the rates return to the official level. International gold standards often limit which entities have the right to redeem currency for gold. Under the Bretton Woods system, these were called "SDRs" for Special Drawing Rights. Special Drawing Rights ( SDRs) is a potential claim on the freely usable currencies of International Monetary Fund members

Stability offered by gold standard

The gold standard limits the power of governments to inflate prices through excessive issuance of paper currency. It is also supposed to create certainty in international trade by providing a fixed pattern of exchange rates. Under the classical international gold standard, disturbances in the price level in one country would be wholly or partly offset by an automatic balance-of-payment adjustment mechanism called the "price specie flow mechanism. The Price-specie-Flow Mechanism is a logical mechanism created by David Hume which dispelled the Mercantilist (1700-1776 notion that a nation can have a continuously " At the time of the Bretton Woods agreement, it was believed that markets were always internally clear; Say's Law. In Economics, Say’s Law or Say’s Law of Markets is a principle attributed to French businessman and economist Jean-Baptiste Say (1767-1832 stating However, in practice, wages, not capital, depreciate in price first.

Mundell-Fleming model

According to modern neo-classical synthesis economics, the Mundell-Fleming Model describes the behavior of currencies under a gold standard. The Mundell-Fleming model is an economic model first set forth by Robert Mundell and Marcus Fleming. Since the value of the currencies is fixed by the par value of each currency to gold, the remaining freedom of action is distributed between free movement of capital, and effective monetary and fiscal policy. One reason that most modern macro-economists do not support a return to gold is the fear that this remaining amount of freedom would be insufficient to combat large downturns or deflation.

Advocates of a renewed gold standard

The return to the gold standard is supported by many followers of the Austrian School of Economics, objectivists and libertarians largely because they object to the role of the government in issuing fiat currency through central banks. The Austrian School, also known as the “ Vienna School ” or the “ Psychological School ” is a heterodox school of economics that advocates Objectivism is a Philosophy developed by Ayn Rand in the 20th century that encompasses positions on Metaphysics, Epistemology, Libertarianism is a term used by a broad spectrum of political philosophies which prioritize individual Liberty and seek to minimize or even abolish the The terms fiat currency and fiat money relate to types of currency or Money whose usefulness results not from any intrinsic value or guarantee that it can be A central bank, reserve bank, or monetary authority is the entity responsible for the Monetary policy of a country or of a group of member states

U. S. Congressman Ron Paul is perhaps the leading advocate of a return to the gold standard (or at least the legalization of competing currencies which would include gold and silver) in the Western world. Gold (ˈɡoʊld is a Chemical element with the symbol Au (from its Latin name aurum) and Atomic number 79 Silver (ˈsɪlvɚ is a Chemical element with the symbol " Ag " (argentum from the Ancient Greek: ἀργήντος - argēntos gen

Few lawmakers today advocate a return to the gold standard, other than adherents of the Austrian school and some supply-siders. Supply-side economics is an arguably heterodox school of Macroeconomic thought that argues that economic growth can be most effectively created using incentives for However, many prominent economists have expressed sympathy with a hard currency basis, and have argued against fiat money, including former US Federal Reserve Chairman Alan Greenspan (himself a former objectivist) and macro-economist Robert Barro. The terms fiat currency and fiat money relate to types of currency or Money whose usefulness results not from any intrinsic value or guarantee that it can be Alan Greenspan (born March 6 1926 in New York City) is an American Economist and was from 1987 to 2006 the Chairman of the Federal Reserve of Robert Joseph Barro (born September 28, 1944) is an American classical liberal Macroeconomist and the Paul M Greenspan famously argued the case for returning to a gold standard in his 1966 paper "Gold and Economic Freedom", in which he described supporters of fiat currencies as "welfare statists" hell-bent on using monetary printing presses to finance deficit spending. He has argued that the fiat money system of today has retained the favorable properties of the gold standard because central bankers have pursued monetary policy as if a gold standard were still in place.

The current monetary system relies on the US Dollar as an “anchor currency” by which major transactions, such as the price of gold itself, are measured. Currency instabilities, inconvertibility and credit access restriction are a few reasons why the current system has been criticized. A host of alternatives have been suggested, including energy-based currencies, market baskets of currencies or commodities; gold is merely one of these alternatives.

In 2001 Malaysian Prime Minister Mahathir bin Mohamad proposed a new currency that would be used initially for international trade between Muslim nations. The Prime Minister of Malaysia (in Malay Perdana Menteri) is the indirectly elected Head of government of Malaysia. Tun Dr Mahathir bin Mohamad (ma'ħɑðiɽ bin mʊħɑmmæd̚ (recorded as born on 20 December 1925 was the fourth Prime Minister of The currency he proposed was called the islamic gold dinar and it was defined as 4. The Islamic gold dinar (sometimes referred as Islamic dinar or Gold dinar) is a Bullion Gold coin made from 25 grams of 24 carat (100%) gold. The KARAT (abbreviation "K" or 'Kt' or "KP" for Karat Plumb is a measure of the Purity of Gold Alloys. Mahathir Mohamad promoted the concept on the basis of its economic merits as a stable unit of account and also as a political symbol to create greater unity between Islamic nations. The purported purpose of this move would be to reduce dependence on the United States dollar as a reserve currency, and to establish a non-debt-backed currency in accord with Islamic law against the charging of interest. The United States dollar ( sign: $; code: USD) is the unit of Currency of the United States; it has also been Sharia ( Arabic: ar شريعة) is the body of Islamic Religious law. [1] However, to date, Mahathir's proposed gold-dinar currency has failed to become an accomplished fact. [2][3]

Gold as a reserve today

Gold ingots like these, from the Bank of Sweden, still form an important currency reserve and store of private wealth.
Gold ingots like these, from the Bank of Sweden, still form an important currency reserve and store of private wealth. Sveriges Riksbank, or simply Riksbanken, is the Central bank of Sweden and the world's oldest central bank
Main article: Official gold reserves

During the 1990s Russia liquidated much of the former USSR's gold reserves, while several other nations accumulated gold in preparation for the Economic and Monetary Union. Gold reserves (or gold holdings) are held by Central banks as a Store of value. Russia (Россия Rossiya) or the Russian Federation ( Rossiyskaya Federatsiya) is a transcontinental Country extending The Swiss Franc left a full gold-convertible backing. However, gold reserves are held in significant quantity by many nations as a means of defending their currency, and hedging against the U. Gold reserves (or gold holdings) are held by Central banks as a Store of value. S. Dollar, which forms the bulk of liquid currency reserves. Weakness in the U. S. Dollar tends to be offset by strengthening of gold prices. Gold remains a principal financial asset of almost all central banks alongside foreign currencies and government bonds. It is also held by central banks as a way of hedging against loans to their own governments as an "internal reserve". Approximately 25% of all above-ground gold is held in reserves by central banks.

Both gold coins and gold bars are widely traded in deeply liquid markets, and therefore still serve as a private store of wealth. A gold coin is a flat disc-shaped piece of Gold that has been minted and issued by a government or private organization "Gold brick" redirects here For other uses see Gold brick (disambiguation. Wealth derives from the old English word "weal" which means "well-being Some privately issued currencies, such as digital gold currency, are backed by gold reserves. Digital gold currency (or DGC) is a form of Electronic money based on ounces of Gold.

In 1999, to protect the value of gold as a reserve, European Central Bankers signed the "Washington Agreement," which stated that they would not allow gold leasing for speculative purposes, nor would they "enter the market as sellers" except for sales that had already been agreed upon. The European Central Bank (ECB is one of the world's most important Central banks responsible for Monetary policy covering the 15 member countries of the

See also

References

  1. ^ D. The Bank for International Settlements (or BIS) is an International organization of Central banks which "fosters international monetary and In Economics, bimetallism is a Monetary standard in which the value of the Monetary unit can be expressed as a certain amount of gold or as a certain amount Full-reserve banking is the Banking practice in which the full amount of each depositor's funds are available in reserve at the bank when each depositor This article discusses buying gold as an investment. Gold price The usual benchmark for the price of gold is known as the London Gold Fixing, a twice-daily The term gold bug is a (sometimes pejorative term used to describe Investors who are very bullish on buying the Commodity Gold (XAU - ISO The International Monetary Fund ( IMF) is an International organization that oversees the Global financial system by following the Macroeconomic The silver standard is a Monetary system in which the standard economic Unit of account is a fixed weight of Silver. The Great Deflation refers to the period from 1870 until 1890 in which world prices of goods materials and labor decreased The United Nations Monetary and Financial Conference, commonly known as Bretton Woods conference, was a gathering of 730 Delegates from all 44 Allied The World Bank is an internationally supported Bank that provides financial and technical assistance to developing countries for development programs (e Baines Economic history in the 20th century (London: LSE/University of London External Programme 2003), chapter 4. The London School of Economics and Political Science, more commonly referred to as The London School of Economics or LSE, is a specialist college of the The University of London External System (until recently the University of London External Programme) is the External degree granting division of the University
  2. ^ The UK suspended the gold standard during subsequent major wars such as the Napoleonic wars (Baines, op. cit. , section 4. 5. 1.
  3. ^ Lapavitsas, C. (2000) "Money and the Analysis of Capitalism: The Significance of Commodity Money" Review of Radical Political Economics 32(4) pp. 631-656
  4. ^ Krech, Shepard; John Robert McNeill and Carolyn Merchant (2004). Encyclopedia of World Environmental History, 597.  
  5. ^ Greenspan, A. (1966), Alan Greenspan on the Gold Standard
  6. ^ W. C. Butterman and Earle B. Amey III. "Open-File Report 02-303"PDF (2. 79 MiB)
  7. ^ U.S. Federal Reserve Statistical Release - H.6 Money Stock Measures. A mebibyte (a contraction of me ga bi nary byte) is a unit of Information or Computer storage, abbreviated MiB. Federal Reserve Board (2008-03-13). 2008 ( MMVIII) is the current year in accordance with the Gregorian calendar, a Leap year that started on Tuesday of the Common Events 1138 - Cardinal Gregorio Conti is elected Antipope as Victor IV, succeeding Anacletus II. Retrieved on 2008-03-16. 2008 ( MMVIII) is the current year in accordance with the Gregorian calendar, a Leap year that started on Tuesday of the Common Events 597 BC - Babylonians capture Jerusalem, replace Jehoiachin with Zedekiah as king
  8. ^ a b Warburton, C. "The Monetary Disequilibrium Hypothesis," in Depression, Inflation, and Monetary Policy, Selected papers, 1945-1953 (Johns Hopkins Press, 1966), pp. 25-35.
  9. ^ Paul, Ron; Lehrman, Lewis; U. Lewis E "Lew" Lehrman (Born August 15, 1938 in Harrisburg, Pennsylvania) actively supports the ongoing study of American history S. Gold Commission (September 1982). The Case for Gold: A Minority Report of the U.S. Gold Commission (PDF), Washington, DC: Cato Institute (2d ed. Washington DC ( formally the District of Columbia and commonly referred to as Washington, the District, or simply D The Cato Institute is a Libertarian Think tank headquartered in Washington D Ludwig von Mises Institute, 2007), 160. The Ludwig von Mises Institute ( LvMI) based in Auburn Alabama, is a Libertarian academic organization engaged in research and scholarship in the fields ISBN 0932790313. OCLC 8763972. The OCLC Online Computer Library Center is according to its website a "nonprofit membership computer library service and research organization dedicated to the public purpose Retrieved on 2007-07-30. Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. Events 1419 - First Defenestration of Prague. 1502 - Christopher Columbus lands at Guanaja in the Bay Islands off  
  10. ^ Bordo, M. (2002) "Gold Standard" Concise Encyclopedia of Economics
  11. ^ a b Hamilton, J. D. (December 12, 2005) "The gold standard and the Great Depression" Econbrowser, citing "The Role of the International Gold Standard in Propagating the Great Depression," published in Contemporary Policy Issues in 1988
  12. ^ Eichengreen, B. and McLean, I. (1994) "The Supply of Gold under the Pre-1914 Gold Standard" Economic History Review 47(2) pp. 288-309.
  13. ^ Margo, R. A. (2000) Wages and Labor Markets in the United States, 1820-1860 (University of Chicago Press)
  14. ^ Paul, Ron; Lehrman, Lewis; U. Lewis E "Lew" Lehrman (Born August 15, 1938 in Harrisburg, Pennsylvania) actively supports the ongoing study of American history S. Gold Commission (September 1982). The Case for Gold: A Minority Report of the U.S. Gold Commission (PDF), Washington, DC: Cato Institute (2d ed. Washington DC ( formally the District of Columbia and commonly referred to as Washington, the District, or simply D The Cato Institute is a Libertarian Think tank headquartered in Washington D Ludwig von Mises Institute, 2007), 124. The Ludwig von Mises Institute ( LvMI) based in Auburn Alabama, is a Libertarian academic organization engaged in research and scholarship in the fields ISBN 0932790313. OCLC 8763972. The OCLC Online Computer Library Center is according to its website a "nonprofit membership computer library service and research organization dedicated to the public purpose Retrieved on 2007-07-30. Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. Events 1419 - First Defenestration of Prague. 1502 - Christopher Columbus lands at Guanaja in the Bay Islands off  
  15. ^ Demirguc-Kunt, A. and Detragiache, E. (24 May 2005) "Cross-Country Empirical Studies of Systemic Bank Distress: A Survey" IMF Working Papers no. 05/96 (Washington, D. C. : International Monetary Fund) page 13
  16. ^ McArdle, M. (4 Sep 2007) "There's gold in them thar standards!" theAtlantic. com

"The Gold Standard: Causes and Consequences,"[Earl Thompson], Encyclopedia of Business Cycles, David Glasner, Ed. ,[Garland Publishing, 1995, pp. 267-272.

External links

What Has Government Done to Our Money? is a book by Murray N Rothbard that details the history of money from early Barter systems to the Gold Murray Newton Rothbard (March 2 1926 – January 7 1995 was an American economist of the Austrian School who helped define modern Libertarianism

Dictionary

gold standard

-noun

  1. A monetary system where the value of circulating money is linked to the value of gold.
  2. (idiomatic) A test or measure of comparison that is considered ultimate or ideal.
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