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The Gold Standard & Today

gold coin Czechoslovakia_1934_10_Ducats.jpg

The gold standard monetary global system was the most prolific system ever created. From 1870-1914 the gold standard showed large GDP numbers around the world. Practically every country was showing growth in numbers not comparable today. In fact the comparison is not even in the same ball park. During this time, actual gold coins were being used for sell and trade. Most of the countries in the world had the same currency “gold” and would have no problem investing in other countries. GDP high numbers were a norm back then with percentages as high as 6-9% with various countries seeing even higher. Let’s look at China’s GDP before their recent crash; they were at a steady 7% and 9%. This was looked at by the world as amazing and un-speakable growth. Well before World War I, these numbers were the norm for every country. The gold standard is recognized as the most perfect system ever created.

gold coins

The Bretton Woods monetary system was created after World War II and to address the economic difficulties some countries were partaking in. This system was to establish commercial and financial relations among countries in 1945. I wasn’t until 1971 when the United States terminated the convertibility of the USD to gold which is known as the “Nixon shock” and ended the Bretton Woods system. the USD was considered a flat currency while states began reserving the US dollar. This began a process of free-floating currencies, the US dollar and the Britain pound began the Floating Rate System where the market forces are what determine the exchange rate between two currencies. The floating system naturally adjusts and is isolated from shocks created from other countries. This gives government’s economic independence without the effects of external economic performances.

gold bars

MBA Knowledge Base. (2016). International Business. In An Eclectic Arrangement, 1973-Present. Retrieved from http://www.mbaknol.com/international-business/an-eclectic-currency-arrangement-1973-present/

 

Nathan Lewis. (2013, January 3). Forbes. Economics & Finance. Retrieved from http://www.forbes.com/sites/nathanlewis/2013/01/03/the-1870-1914-gold-standard-the-most-perfect-one-ever-created/#1334bcea50d8

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