Gold Standard
Posted by Ripon Abu Hasnat on Friday, June 13, 2014 | 0 comments
Gold
Standard is a monetary system in which a country's government allows its
currency unit to be freely converted into fixed amounts of gold and vice versa.
The exchange rate under the gold standard monetary system is determined by the
economic difference for an ounce of gold between two currencies.
The gold
standard was mainly used from 1875 to 1914 and also during the interwar years.
The use of the gold standard would mark the first use of formalized exchange
rates in history. However, the system was flawed because countries needed to
hold large gold reserves in order to keep up with the volatile nature of supply
and demand for currency. After World War II, a modified version of the gold
standard monetary system, the Bretton Woods monetary system created as its
successor. This successor system was initially successful, but because it also
depended heavily on gold reserves, it was abandoned in 1971 when U.S President
Nixon "closed the gold window."
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