Many countries define the gold standard as a monetary system in which the currency used is based on a fixed amount (Au). In this monetary system, cash and bank deposits can be exchanged for gold and determine the price. So far, there are 3 common types of standards, and they have been practiced since the 1700s. They are known as gold species, gold bars and gold exchange. To learn a little more about these three different standards, below is a brief explanation:
1. The golden species. In this particular version of the gold standard, the currency unit has a direct relationship with the circulation of gold coins. In other words, the unit of currency is related to the unit of value of each different gold coin. A secondary coin with a lower value than gold also uses the same rules. The presence of the gold standard was discovered in the era of medieval empires. The Byzantine (Greek) and British West Indies are some examples of the gold standard. However, this type of standard is more of an application system because it is not formally established. He comes from Spain and is known as the shepherd. In 1873, the U.S. legally adopted the system, and the American Golden Eagle is used as a unit.
2. Gold Exchange. This particular gold standard only provides for the circulation of coins whose value is less than gold, such as silver. Authorities typically introduce a fixed gold exchange rate for countries that use the gold standard. Many countries have chosen to peg their currency units to the gold standard in the US and the UK. For example, the Japanese, Mexicans and Filipinos choose to exchange silver for US dollars at a price of $ 0.50 per unit.
3. Gold bar. This type of gold standard sells gold bars at fixed prices based on demand. This method of trade was first conducted by the British Parliament in 1925, as a result of which the abolition of the standard for gold specificity occurred. In 1931, the British government decided to temporarily ban gold bullion to stop the excessive flow of gold across the Atlantic. In the same year the gold standard came to an end.
The use of the gold standard has brought several benefits. One is that the power that determines the emergence of inflation in the country is not fully transferred to the government. In other words, you can curb inflation by preventing the government from issuing excess paper currency. At the same time, gold and silver exchange rates will develop a fixed pattern in which global economic uncertainty can be reduced on a large scale. However, as with many other monetary systems, gold bars have their drawbacks. It is assumed that it may not be able to stabilize the economy during a depressed financial situation, as it may lead to ineffective monetary policy. Belief makes sense, and many economists fear that their theory will come true. In the gold standard, availability (Au) is the only factor that determines the availability of money.