Gold standard

The gold standard is defined as “a monetary system in which the standard economic unit of account is a fixed weight of gold.” What this means is that currencies of nations using the gold standard are defined or given value in terms of gold. This is done by setting a standard price per ounce of gold, and then computing the value of the currency depending on that set price.

For example, if under the gold standard price of gold is $100 per ounce, then the value of $1 would be 1/100th of an ounce of gold. The value of a dollar will only fluctuate if the set price of the gold changes.

There are three kinds of gold standards: the gold specie standard, gold exchange standard, and gold bullion standard.The gold specie standard has been around for a very long time. In fact, it existed not just in modern states but in ancient times, being used by great empires like the Byzantine Empire. However, after the discovery of huge silver deposits by the Spaniards in the 16th century, the silver standard became more prevalent. The gold standard made a comeback as a universal currency in the 1870s following a crisis in silver currency and bank notes. The gold exchange standard remained in place until 1914, with the gold bullion standard more prevalent from 1925 to 1931, due to the The British Gold Standard Act 1925, which introduced the new gold standard and repealed the old gold specie standard.

Nowadays, the gold standard is not used in any major economy. Instead, what is used by most countries is a system called the fiat money, which uses money or cash only as a medium of exchange and is not dependent on gold or any other precious metal in determining money’s value.