The Introspection of the Gold Standard
Introduction of the Gold Standard
The Gold Standard era started from 1870 to 1914. With the help of historical accidents centering on Britain, Britain tied the pound sterling more closely to gold than to silver. In addition, Britain’s UK dollar became the supplier of reserve currency. Under the gold standard, each country’s government fixed its currency to a specified quantity of gold, and promised full convertibility to gold. Each country’s government would sell and or buy gold at mint parity. Furthermore, changes in the government’s gold holdings were directly linked to changes in the country’s money supply, contributed to country’s average price level, inflation rate, and some parts of its macroeconomic performance. Furthermore, the gold standard era was also a period of unprecedented economic growth with relatively free trade in gods, labor, and capital. Retrospect to the prewar era, the gold standard seems like successful, based on its function that defending the inflation. The gold standard was a domestic standard regulating the quantity and the growth rate of a country’s money supply. Pick U.S. as an example, we suppose that U.S. as home country with import lager than export. The BOP deficit creates market pressure for dollar depreciating and pound appreciating from official exchange rate. U.S. defends the floating of the official exchange rate by selling gold to the foreign country and buy U.S. dollar. As the gold leaves home, U.S. money supply falls down thus to domestic price and wages falling down in a short turn. This conduct leads the American export enhancement, which could eliminates home’s BOP deficit. As long as U.S. restores mint parity with export and import balance, the gold flows will stop. The gold standard appears to work automatically to restore country’s BOP balance and mint parity that the country’s Central Bank would not need to intervention, and it also seen as defense against
The Gold Standard era started from 1870 to 1914. With the help of historical accidents centering on Britain, Britain tied the pound sterling more closely to gold than to silver. In addition, Britain’s UK dollar became the supplier of reserve currency. Under the gold standard, each country’s government fixed its currency to a specified quantity of gold, and promised full convertibility to gold. Each country’s government would sell and or buy gold at mint parity. Furthermore, changes in the government’s gold holdings were directly linked to changes in the country’s money supply, contributed to country’s average price level, inflation rate, and some parts of its macroeconomic performance. Furthermore, the gold standard era was also a period of unprecedented economic growth with relatively free trade in gods, labor, and capital. Retrospect to the prewar era, the gold standard seems like successful, based on its function that defending the inflation. The gold standard was a domestic standard regulating the quantity and the growth rate of a country’s money supply. Pick U.S. as an example, we suppose that U.S. as home country with import lager than export. The BOP deficit creates market pressure for dollar depreciating and pound appreciating from official exchange rate. U.S. defends the floating of the official exchange rate by selling gold to the foreign country and buy U.S. dollar. As the gold leaves home, U.S. money supply falls down thus to domestic price and wages falling down in a short turn. This conduct leads the American export enhancement, which could eliminates home’s BOP deficit. As long as U.S. restores mint parity with export and import balance, the gold flows will stop. The gold standard appears to work automatically to restore country’s BOP balance and mint parity that the country’s Central Bank would not need to intervention, and it also seen as defense against