Explain how the International Gold Standard that emerged in the half-century before 1914 can be interpreted as a system of ‘fixed exchange rates’

Explain how the International Gold Standard that emerged in the half-century before 1914 can be interpreted as a system of ‘fixed exchange rates’. Hence discuss the advantages and disadvantages of the Gold Standard as a policy regime. The International Gold Standard that emerged during the late nineteenth century and continued through to the early twentieth century, also know as the classical Gold Standard, was of paramount importance in an era where international trade grew exponentially. Most of the world’s leading economic powers operated under the gold standard, and through this system the world economies maintained a system of fixed exchange rates. This essay will attempt to explain the Gold Standard with a discussion held as to the pros and cons of the Gold Standard as a policy regime. It will be split into four sub-sections as follows:
The first section of this essay will briefly explain the meaning of a fixed exchange rate regime and an example will be given of a leading economic nation that adopted such a system in the modern world, a time where there are increasing international pressures to remove such a system and adopt that of a floating exchange rate regime.
The second section will explain the macroeconomic policies associated with a fixed exchange rate, and an explanation as to how these policies affect the value of a nation’s currency under a pegged exchange rate compared to that of a floating exchange rate will be given.
The first two sections are a build up to the third section, where the workings of the International Gold Standard and its effects on the global economy will be explained in detail in order to give a better understanding as to the discussion that will be held in the fourth section.
A discussion will be held in the fourth and final section of the essay, weighing up the advantages and disadvantages of nations adopting the gold standard in the pre-war period of 1880-1914 as a policy regime.

The Meaning of a “Fixed Exchange

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