Gold exchange standard: history, essence

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The gold exchange standard is the final stage in the development of all variations of the gold forms of money circulation. It was the last system under which a mere human could at least theoretically exchange his paper money for real gold. Unfortunately, the standard had some serious shortcomings, which eventually led to the fact that all countries in the world abandoned it.

History of the gold standard

Despite the fact that mankind used coins made of precious metals for most of its history, it was only in the 18th century that the first version of the gold standard was officially adopted. Gradually, it underwent various changes, and in the end, the countries of the world, in order to avoid a financial crisis, abandoned such a system. From the gold coin standard, the gold exchange standard ultimately got only a reference to the precious metal. She ended up missing anyway.

Features of the gold coin standard

This kind of financial system implied the free circulation of both gold coins and paper banknotes. They could at any time be exchanged by ownerdirectly into gold equivalent to the value of the specified means of payment. This standard was highly stable and reliable, but there were also significant problems.

So, for example, there was not enough gold for everyone, the number of people on the planet was steadily increasing, and after the First World War it was decided to abandon the system in favor of a more advanced one. As you can see, it was the global wars that led to the gradual abolition of the peg of the currency to gold. Many experts link changes in the world's monetary system, economic breakthroughs, and even the industrial potential of different countries directly with global conflicts, forcing us to radically reconsider everything that existed before.

Gold Bullion Standard

This is the second version of the foreign exchange settlement scheme. According to this scheme, the gold bullion, gold exchange standards, as well as the earlier standard of the gold coin type, still retained the possibility of exchanging money for real precious metal. True, now a rather serious limitation arose, which consisted in the fact that the exchange could be made exclusively for ingots of a certain size and value. This approach automatically excluded from the lists of those wishing to receive gold in their hands all those who simply could not pay for it. The price for such an ingot was quite high, and only with a long accumulation process or very high incomes did a person have the opportunity to “feel” the real precious metal.

In fact it wasavailable to a very narrow circle of people, but this approach did not completely remove the problem of a shortage of gold reserves, because most countries simply did not have access to cheap reserves of precious metals. As a result, further changes were needed.

Gold exchange standard

It was at this stage that the entire history of the system ended, taking into account the availability of precious metals reserves. She was the last, and for ordinary people is already inaccessible. Disappeared relatively recently, in 1976. It also existed for a relatively short time, less than thirty years, starting in 1944, when the Second World War was almost over.

The currency system of the gold exchange standard was a scheme in which all currencies were tied to a single one - the US dollar. And only this money could be exchanged for gold, and even then exclusively by large banking organizations. The common man was deprived of such an opportunity. For some time, stability in the economy saved the situation, but gradually the number of dollars increased so much that the available reserves were simply not enough to provide all these means of payment. As a result, this standard was also canceled.

Pros and cons of standards

At its core, the gold coin, gold bullion, gold exchange standard is just a system for distributing the precious metal among the population of the planet. The more people, the less gold for each. Gotta change somethingcorrect and improve. The first variation, which was used by mankind for most of its history, has one huge plus - every single citizen of any country always knew for sure that he had a certain amount of funds that would not go anywhere. In fact, no global financial crises, wars and similar events could devalue money in such a situation.

The second variation of the standard still retained these benefits, but they became available only to a very limited number of people. And after the latest changes, when the gold exchange standard appeared, the restrictions became so global that even a fairly rich person could not get the precious metal in his hands. This opportunity remained only with large banking institutions. At the same time, the shortage of gold still gradually increased and eventually forced us to abandon the peg of any currency to this precious metal.

Current situation

After it became clear that the gold exchange standard did not solve the problem, but only postponed it for a not too long period, it was decided to abandon settlements in gold altogether. Almost all the world's leading countries agreed with this at different times, the rest were simply put before the fact. Now currency prices are floating, depending on such a huge number of factors that even a professional with a very long experience in this field cannot always foresee where it will swing.course.

A similar situation now with the cost of various goods. If earlier the price for them was formed according to the principle of the total costs of creation, transportation, storage, wages, and so on, now all these indicators are rather of a secondary nature. And the principle of how much they are willing to pay for a given product came to the fore. In fact, the cost of most of any modern product is not worth even a tenth of the money that is asked for it. But as long as there are people willing to shell out the requested amounts for these goods, the situation will not change.