
#REDIRECT Gold standard
:''This article is on the monetary principle. For gold standard in diagnostic testing, see gold standard (test).'' The gold standard is a monetary system in which the standard economics unit of account is a fixed weight of gold. When several nations are using such a fixed unit of account, the exchange rate among national currencies effectively become fixed. The gold standard can also be viewed as a monetary system in which changes in the supply and demand of gold determine the value of goods and services in relation to their supply and demand. == Why gold? == Due to its rarity and durability, gold has long been used as a currency. The exact nature of the evolution of money varies significantly across time and place, though it is believed by historians that gold's high value for its utility, density, resistance to corrosion, uniformity, and easy divisibility made it useful both as a store of value and as a unit of account for stored value of other kinds — in Babylon a bushel of wheat was the unit of account, with a weight in gold used as the token to transport value. Early monetary systems based on grain used gold to represent the stored value. Banking began when gold deposited in a bank could be transferred from one bank account to another by a giro system, or lent at interest. When used as part of a hard-money system, the function of banknote is to reduce the danger of transporting gold, reduce the possibility of debasement of coins, and avoid the reduction in circulating medium to hoarding and losses. The early development of paper money was spurred originally by the unreliability of transportation and the dangers of long voyages, as well as by the desire of governments to control or regulate the flow of commerce within their dominion. Money backed by a specie is sometimes called representative money, and the notes issued are often called certificates, to differentiate them from other forms of paper money. Through most of human history, however, silver was the primary circulating medium and major monetary metal. Gold was the metal that was used as an ultimate store of value, and as means of payment when portability was at a premium, particularly for payment of armies. Gold would supplant silver as the basic unit of international trade at various times, including the Islamic golden age, the peak of the Italian trading states during the Renaissance, and most prominently during the 19th century. Gold would remain the metal of monetary reserve accounting until the collapse of the Bretton Woods system agreement in 1972, and remains an important hedge against the actions of central banks and governments, a means of maintaining general liquidity, and as a store of value. == Early coinage == The first metal used as a currency was silver, before 20th century BC, when silver ingots were used in trade, and it was not until 1500 years later that the first coinage of pure gold was introduced. However, long before this time gold had been the basis of trade contracts in Akkadia, and later in Ancient Egypt. Silver remained the most common monetary metal used in ordinary transactions through the 19th century. The Persian Empire collected taxes in gold and, when conquered by Alexander the Great, this gold became the basis for the gold coinage of his Macedon. The paying of mercenary and army in gold solidified its importance: gold became synonymous with paying for military operations, as mentioned by Niccolò Machiavelli in ''The Prince'' two thousand years later. The Roman Empire mint (coin) two important gold coins: aureus, which was approximately 7 grams of gold alloyed with silver, and the smaller Solidus (coin), which weighed 4.4 grams, of which 4.2 was gold. The Roman mints were fantastically active — the Romans minted, and circulated, millions of coins during the course of the Roman Republic and the Empire. After the collapse of the Western Roman Empire and the exhaustion of the gold mines in Europe, the Byzantine empire continued to mint successor coins to the solidus called the nomisma or bezant. They were forced to mix more and more base metal with the gold until, by the turn of the millennium, the coinage in circulation was only 25% gold by weight. This represented a tremendous drop in real value from the old 95% pure Roman coins. Thus, trade was increasingly conducted via the coinage in use in the Arabic world, produced from African gold: the dinar. The dinar and dirham were gold and silver coins, respectively, originally minted by the Persians. The Caliphates in the Islamic world adopted these coins, but it is with Caliph Abd al-Malik (685–705) who reformed the currency that the history of the dinar is usually thought to begin. He removed depictions from coins, established standard references to Allah on the coins, and fixed ratios of silver to gold. The growth of Islamic power and trade made the dinar the dominant coin from the Western coast of Africa to northern India until the late 1200s, and it continued to be one of the predominant coins for hundreds of years afterwards. In 1284, the Republic of Venice coined their first solid gold coin, the ducat, which was to become the standard of European coinage for the next 600 years. Other coins, the florin, nobel, grosh, zloty, and British coin Guinea, were also introduced at this time by other European states to facilitate growing trade. The ducat, because of Venice's pre-eminent role in trade with the Islamic world and its ability to secure fresh stocks of gold, would remain the standard against which other coins were measured. Beginning with the conquest of the Aztec Empire and Inca Empire, Spain had access to stocks of new gold for coinage in addition to silver. The primary Spanish gold unit of account was the escudo, and the basic coin the 8 escudos piece, or "doubloon", which was originally set at 27.4680 grams of 22 carat (92%) gold, using current measures, and was valued at 16 times the equivalent weight of silver. The wide availability of milled and cob gold coins made it possible for the West Indies to make gold the only legal tender in 1704. The circulation of Spanish coins would create the unit of account for the United States, the "dollar" based on the Spanish silver real, and Philadelphia's currency market would trade in Spanish colonial coins. == History of the modern gold standard == The adoption of gold standards proceeded gradually. This has led to conflicts between different economic historians as to when the "real" gold standard began. Sir Isaac Newton included a ratio of gold to silver in his assay of coinage in 1717 which created a relationship between gold coins and the silver penny which was to be the standard unit of account in the Law of Queen Anne; for some historians this marks the beginning of the "gold standard" in England. However, more generally accepted is that a full gold standard requires that there be one source of notes and legal tender, and that this source is backed by convertibility to gold. Since this was not the case throughout the 18th century, the generally accepted view is that England was not on a gold standard at this time. (See also History of the English penny) === The crisis of silver currency and bank notes (1750–1870) === To understand the adoption of the international gold standard in the late 19th century, it is important to follow the events of the late 18th century and early 19th. In the late 18th century, wars and trade with China, which sold to Europe, but had little use for European goods, drained silver from the economies of Western Europe and the United States. Coins were struck in smaller and smaller amounts, and there was a proliferation of bank and stock notes used as money. In the 1790s England suffered a massive shortage of silver coinage, and ceased to mint larger silver coins, issued "token" silver coins and overstruck foreign coins. With the end of the Napoleonic Wars, England began a massive recoinage program, that created standard gold sovereigns and circulating crowns and half-crowns, and eventually copper farthings in 1821. The recoinage of silver in England after a long drought produced a burst of coins: England struck nearly 40 million shillings between 1816 and 1820, 17 million half crowns and 1.3 million silver crowns. The 1819 Act for the Resumption of Cash Payments set 1823 as the date for resumption of convertibility, reached instead by 1821. Throughout the 1820s small notes were issued by regional banks, which were finally restricted in 1826, while the Bank of England was allowed to set up regional branches. In 1833, however, the Bank of England notes were made legal tender, and redemption by other banks was discouraged. In 1844 the Bank Charter Act established that Bank of England Notes, fully backed by gold, were the legal standard. According to the strict interpretation of the gold standard, this 1844 act marks the establishment of a full gold standard for British money. The US adopted a silver standard based on the "Spanish milled dollar" in 1785. This was codified in the 1792 Coinage Act (1792), and by the Federal Government of the United States's use of the "Bank of the United States" to hold its reserves, as well as establishing a fixed ratio of gold to the United States dollar. This was, in effect, a derivative silver standard, since the bank was not required to keep silver to back all of its currency. This began a long series of attempts for America to create a bimetallic standard for the US Dollar, which would continue until the 1920s. Gold and silver coins were legal tender, including the Spanish real, a silver coin struck in the Western Hemisphere. Because of the huge debt taken on by the US Federal Government to finance the American Revolution, silver coins struck by the government left circulation, and in 1806 Thomas Jefferson suspended the minting of silver coins. The United States Department of the Treasury was put on a strict hard money standard, doing business only in gold or silver coin as part of the Independent Treasury Act of 1848, which legally separated the accounts of the Federal Government from the banking system. However the fixed rate of gold to silver overvalued silver in relation to the demand for gold to trade or borrow from England. The drain of gold in favor of silver led to the search for gold, including the "California Gold Rush" of 1849. Following Gresham's law, silver poured into the US, which traded with other silver nations, and gold moved out. In 1853 the US reduced the silver weight of coins, to keep them in circulation, and in 1857 removed legal tender status from foreign coinage. In 1857 the final crisis of the free banking era of international finance began, as American banks suspended payment in silver, rippling through the very young international financial system of central banks. In the United States this collapse was a contributory factor in the American Civil War, and in 1861 the US government suspended payment in gold and silver, effectively ending the attempts to form a silver standard basis for the dollar. Through the 1860–1871 period various attempts to resurrect bi-metallic standards were made, including one based on the gold and silver franc, however, with the rapid influx of silver from new deposits, the expectation of scarcity of silver ended. The interaction between central banking and currency basis formed the primary source of monetary instability during this period. The combination that produced economic stability was restriction of supply of new notes, a government monopoly on the issuance of notes directly and indirectly, a central bank and a single unit of value. Attempts to evade these conditions produced periodic monetary crisis — as notes devalued, or silver ceased to circulate as a store of value, or there was a depression as governments, demanding specie as payment, drained the circulating medium out of the economy. At the same time there was a dramatically expanded need for credit, and large banks were being chartered in various states, including, by 1872, Japan. The need for a solid basis in monetary affairs would produce a rapid acceptance of the gold standard in the period that followed. === Establishment of the International Gold Standard (1871–1900) === Germany was created as a unified country following the Franco-Prussian War; it established the Reichsmark, went on to a strict gold standard, and used gold mined in South Africa to expand the money supply. Rapidly most other nations followed suit, since gold became a transportable, universal and stable unit of valuation. See Globalization. Dates of Adoption of a Gold Standard: * Germany 1871 * Latin Monetary Union 1873 (Belgium, Italy, Switzerland, France) * United States 1873 de facto * Scandinavia 1875 by monetary Union: Denmark, Norway and Sweden * Netherlands 1875 * France internally 1876 * Spain 1876 * Austria 1879 * Russia 1893 * Japan 1897 * India 1898 * United States 1900 de jure. Throughout the decade of the 1870s deflationary and depressionary economics created periodic demands for silver currency. However, such attempts generally failed, and continued the general pressure towards a gold standard. By 1879, only gold coins were accepted through the Latin Monetary Union, composed of France, Italy, Belgium, Switzerland and later Greece, even though silver was, in theory, a circulating medium. By creating a standard unit of account which was easily redeemable, relatively stable in quantity, and verifiable in its purity, the gold standard ushered in a period of dramatically expanded trade between industrializing nations, and "periphery" nations which produced agricultural goods — the so called "bread baskets". This "First Era of Globalization" was not, however, without its costs. One of the most dramatic was the Irish Potato Famine, where even as people began to starve it was more profitable to export food to Britain. The result turned a blight into a humanitarian disaster. Amartya Sen in his work on famines theorized that famines are caused by an increase in the price of food, not by food shortage itself, and hence the root cause of trade based famines is an imbalance in wealth between the food exporter and the food importer. At the same time it caused a dramatic fall in aggregate demand, and a series of long Depressions in the United States and the United Kingdom. This should not be confused with the failure to industrialization or a slowing of total output of goods. Thus the attempts to produce alternate currencies include the introduction of Postal Money Orders in Britain in 1881, later made legal tender during World War I, and the "United States Greenback Party" party in the US, which advocated the slowing of the retirement of paper currency not backed by gold. By encouraging industrial specialization, industrializing countries grew rapidly in population, and therefore needed sources of agricultural goods. The need for cheap agricultural imports, in turn, further pressured states to reduce tariffs and other trade barriers, so as to be able to exchange with the industrial nations for capital goods, such as factory machinery, which were needed to industrialize in turn. Eventually this pressured taxation systems, and pushed nations towards income and sales taxes, and away from tariffs. It also produced a constant downward pressure on wages, which contributed to the "agony of industrialization". The role of the gold standard in this process remains hotly debated, with new articles being published attempting to trace the interconnections between monetary basis, wages and living standards. By the 1890s in the United States, a reaction against the gold standard had emerged centered in the U.S. South and Great Plains. Many farmers began to view the scarcity of gold, especially outside the banking centers of the East, as an instrument to allow Eastern bankers to instigate credit squeezes that would force western farmers into widespread debt, leading to a consolidation of western property into the hands of the centralized banks. The formation of the United States Populist Party in Lampasas, Texas specifically centered around the use of "easy money" that was not backed by gold and which could flow more easily through regional and rural banks, providing farmers access to needed credit. Opposition to the gold standard during this era reached its climax with the U.S. presidential election, 1896 of Democratic Party (United States) William Jennings Bryan of Nebraska. Bryan argued against the gold standard in his Cross of gold speech in 1896, comparing the gold standard (and specifically its effects on western farmers) to the crown of thorns worn by Jesus at his crucifixion. After being defeated in 1896, Bryan ran and lost again in U.S. presidential election, 1900 and U.S. presidential election, 1908, each time carrying mostly Southern and Great Plains states. The key change in this period was the adoption of a monetary policy to raise interest rates in response to gold outflows, or to maintain large stocks of gold in the reserves of the central bank. This policy created a credibility of commitment to the gold standard. According to Lawrence Officer and Alberto Giovanni, this can be seen from the relationship between the Bank of England rate, and the flow between the pound and the dollar, mark and franc. From 1889 through 1908, the pound maintained a direct bank rate rule relationship with the dollar 99% of the time, and 92% of the time with the mark. Thus, according to the theory of gold standard monetary dynamics, the key to this credibility was the willingness of the Bank of England to make adjustments to the discount rate to stabilize sterling to other currencies in the gold, or de facto gold, standard world, during the peak period of the gold standard composed of 360 months, the Bank of England bank rate was adjusted over 200 times in response to gold flows, a rate of change higher than current central banks. === Gold Standard from peak to crisis (1901–1932) === By 1900 the need for a lender of last resort had become clear to most major industrialized nations. The importance of central banking to the financial system was proven largely by examples such as the 1890 bail out of Barings Bank by the Bank of England. Barings had been threatened by imminent bankruptcy. Only the United States still lacked a central banking system. There had been occasional panics since the end of the depressions of the 1880s and 1890s which some attributed to the centralization of production and banking. The increased rate of industrialization and imperial colonization, however, had also served to push living standards higher. Peace and prosperity reigned through most of Europe, albeit with growing agitation in favor of socialism and communism because of the extremely harsh conditions of early industrialization. This came to an abrupt halt with the outbreak of World War I. United Kingdom was almost immediately forced to take steps that would lead to its gradually leaving its gold standard, ending convertibility to Bank of England notes starting in 1914. By the end of the war England was on a series of fiat currency regulations, which monetized Postal Money Orders and Treasury Notes. The need for larger and larger engines of war, including battleships and munitions, created inflation. Nations responded by printing more money than could be redeemed in gold, effectively betting on winning the war and redeeming out of reparations, as Germany had in the Franco-Prussian War. The US and the UK both instituted a variety of measures to control the movement of gold, and to reform the banking system, but both were forced to suspend use of the gold standard by the costs of the war. The Treaty of Versailles instituted punitive reparations on Germany and the defeated Central Powers, and France hoped to use these to rebuild her shattered economy, as much of the war had been fought on French soil. Germany, facing the prospect of yielding much of her gold in reparations, could no longer coin gold "Reichsmarks", and moved to paper currency. The series of arrangements to prop up the gold standard in the 1920s would constitute a book length study unto themselves, with the Dawes Plan superseded by the Young Plan. In effect the US, as the most persistent positive balance of trade nation, loaned the money to Germany to pay off France, so that France could pay off the United States. After the war, the Weimar Republic suffered from hyperinflation and introduced "Rentenmarks", an asset currency, to halt it. These were withdrawn from circulation in favor of a restored gold Reichsmark in 1924. In the UK the pound (currency) was returned to the gold standard in 1925, by the somewhat reluctant Chancellor of the Exchequer Winston Churchill, on the advice of conservative economists at the time. Although a higher gold price and significant inflation had followed the WWI ending of the gold standard, Churchill returned to the standard at the pre-war gold price. For five years prior to 1925 the gold price was managed downward to the pre-war level, meaning a significant deflation (economics) was forced onto the economy. John Maynard Keynes was one economist who argued against the adoption of the pre-war gold price believing that the rate of conversion was far too high and that the monetary basis would collapse. He called the gold standard "that barbarous relic". This deflation reached across the remnants of the British Empire everywhere the Pound Sterling was still used as the primary unit of account. In the UK the standard was again abandoned in 1931. Sweden abandoned the gold standard in 1929, the US in 1933, and other nations were, to one degree or another, forced off the gold standard. As part of this process, many nations, including the US, banned private ownership of large gold stocks. Instead, citizens were required to hold only legal tender in the form of central bank notes. While this move was argued for under national emergency, it was controversial at the time, and there are still those who regard it as an illegal and unconstitutional usurpation of private property. === The Depression and Second World War (1933–1945) === In 1933 the London Conference marked the death of the international gold standard as it had developed to that point in time. While the United Kingdom and the United States desired an eventual return to the Gold Standard, with President Franklin D. Roosevelt saying that a return to international stability "must be based on gold" — neither was willing to do so immediately. France and Italy both sent delegations insisting on an immediate return to a fully convertible international gold standard. A proposal was floated to stabilize exchange rates between France, Britain and the United States based on a system of drawing rights, but this too collapsed. The central point at issue was what value the gold standard should take. Cordell Hull, the United States Secretary of State, was instructed to require that reflation of prices occur before returning to the Gold Standard. There was also deep suspicion that Britain would use favorable trading arrangements in the Commonwealth of Nations to avoid fiscal discipline. Since the collapse of the Gold Standard was attributed, at the time, to the US and the UK trying to maintain an artificially low peg to gold, agreement became impossible. Another fundamental disagreement was the role of tariffs in the collapse of the gold standard, with the liberal government of the United States taking the position that the actions of the previous American Administration had exacerbated the crisis by raising tariff barriers. In the years that followed nations pursued bilateral trading agreements, and by 1935, the economic policies of most Western nations were increasingly dominated by the growing realization that a global conflict was highly likely, or even inevitable. During the 1920s the austerity measures taken to restabilize the Global financial system had cut military expenditures drastically, but with the arming of the Axis powers, war in Asia, and fears of the Soviet Union exporting communist revolution, the priority shifted toward armament, and away from re-establishing a gold standard. The last gasp of the 19th century gold standard came when the attempt to balance the United States Budget in 1937 led to the "Roosevelt Recession". Even such gold advocates as Roosevelt's budget director conceded that until it was possible to balance the budget, a gold standard would be impossible. Nazi Germany, as part of its pogrom against various minorities including homosexuality, the physically or mentally handicapped, Slavic peoples citizens, gypsy, and Jews, used the gold looted from them to finance its war effort. Some Swiss banks were among the international banks who ended up handling gold deposits from this source. The gold was then deposited with the Reichsbank and used as the basis for notes to be issued which were to be accepted as currency. The Reich then instituted wage and price controls, backed by internment in prison camps, to prevent this "Mefo financing" from producing hyper-inflation. During the 1939–1942 period, Britain depleted much of its gold stock in purchases of munitions and weaponry on a "cash and carry" basis from the US and other nations. This depletion of Britain's reserve signalled to Winston Churchill that returning to a pre-war style gold standard was impractical; instead, John Maynard Keynes, who had argued against such a gold standard, became increasingly influential: his proposals, a more wide ranging version of the "stability pact" style gold standard, would find expression in the Bretton Woods Agreement. === Post-war International Gold Standard (1946–1971) === ''This is discussed in the article on Bretton Woods system'' ==Theory== The essential features of the gold standard in theory rest on the idea that inflation is caused by an increase in the Money supply, an idea advocated by David Hume, and that uncertainty over the future purchasing power of money depresses business confidence and leads to reduced trade and capital investment. The central thesis of the gold standard is that removing uncertainty, friction between kinds of currency, and possible limitations in future trading partners will dramatically benefit an economy, by expanding both the market for its own goods, the solidity of its credit, and the markets from which its consumers may purchase goods. In much of gold standard theory, the benefits of enforcing monetary and fiscal discipline on the government are central to the benefits obtained, advocates of the gold standard often believe that governments are almost entirely destructive of economic activity, and that a gold standard, by reducing their ability to intervene in markets, will increase personal liberty and economic vitality. === Differing definitions of "gold standard" === If the monetary authority holds sufficient gold to convert all circulating money, then this is known as a 100% reserve gold standard, or a full gold standard. Some believe there is no other form of gold standard, since on any "partial" gold standard the value of circulating representative paper in a free economy will always reflect the faith that the market has in that note being redeemable for gold. Others, such as some modern advocates of supply-side economics contest that so long as gold is the accepted unit of account then it is a true gold standard. In an internal gold-standard system, gold coins circulate as legal tender or paper money is freely convertible into gold at a fixed price. In an international gold-standard system, which may exist in the absence of any internal gold standard, gold or a currency that is convertible into gold at a fixed price is used as a means of making international payments. Under such a system, when exchange rates rise above or fall below the fixed mint rate by more than the cost of shipping gold from one country to another, large inflows or outflows occur until the rates return to the official level. International gold standards often limit which entities have the right to redeem currency for gold. Under the Bretton Woods system, these were called "SDRs" for Special Drawing Rights. There is also a set of legal criteria which typically must be fulfilled for an international gold standard: #Coins should be convertible to a set amount of gold (that any bills are convertible to gold is implicit). #There must be gold coins circulating in the country (no central administration should control all gold). #There must be no legal difference between coined and non-coined gold. #There must be no legal restrictions that prohibits melting of gold coins. #There must be no legal restriction on export/import of coined/non-coined gold. === Effects of gold-backed currency === The commitment to maintain gold convertibility tightly restrains credit creation. Credit creation by banking entities under a gold standard threatens the convertibility of the notes they have issued, and consequently leads to undesirable gold outflows from that bank. The result of a failure of confidence produces a run on the specie basis, which is generally responded to by the bankers suspending specie payments. Hence, notes circulating in any "partial" gold standard will either be redeemed for their face value of gold (which would be higher than its Intrinsic value) — this constitutes a bank "run"; or the market value of such notes will be viewed as less than a gold coin representing the same amount. In the international gold standard imbalances in international trade were rectified by requiring nations to pay accounts in gold. A country in deficit would have to pay its debts in gold thus depleting gold reserves and would therefore have to reduce its money supply. This would cause prices to deflate, reducing economic activity and, consequently, demand would fall. The resulting fall in demand would reduce imports; thus theoretically the deficit would be rectified when the nation was again importing less than it exported. This led to a constant pressure to close economies in the face of currency drains in what critics called "beggar thy neighbor" policies. Such zero-sum gold standard systems showed periodic imbalances which had to be corrected by rapid falls in output. In practice however this could seriously destabilize the economy of countries which ran a trade deficit, because people tended to make a run on the bank to retrieve their money before gold reserves were exported, thus causing banks to collapse and wiping out savings. Bank runs and failures were a common feature of life during the period when the gold standard was the established economic system. It also created a counter-cyclical effect, as governments taxed trade, they accumulated gold and silver coin, which reduced the monetary base for the private economy. This paradox lead to "money droughts" and inflation, as governments taxed, often to pay for wars, and paid in coin, while the velocity of money decreased in the private economy as individuals hedged against the uncertain political situation by hoarding gold. Each attempt to introduce paper money was met, sooner or later, with either over-printing of money and the resulting collapse of the "fiat" money, including paper francs, continentals printed by the pre-Constitutional US Congress and various "bubbles". Or it would create the demand by the government to be paid only in specie, which devalued the existing paper money. The gold standard, in theory, limits the power of governments to cause price inflation by excessive issue of paper currency, although there is evidence that before World War I monetary authorities did not expand or contract the supply of money when the country incurred a gold outflow. It is also supposed to create certainty in international trade by providing a fixed pattern of exchange rates. The gold standard in fact is deflationary, as the rate of growth of economies generally outpaces the growth in gold reserves. This, after the inflationary silver standards of the 1700s was regarded as a welcome relief, and an inducement to trade. However by the late 19th century, agitation against the gold standard drove political movements in most industrialized nations for some form of silver, or even paper based, currency. Under the classical international gold standard, disturbances in the price level in one country would be wholly or partly offset by an automatic balance-of-payment adjustment mechanism called the price-specie-flow mechanism. (''Specie'' refers to gold coins.) The steps in this mechanism are first: when the price of a good drops, because of oversupply, capital improvement, drop in input costs or competition, buyers will prefer that good over others. Because the stabilization of currencies to gold, buyers within the gold based economies will preferentially buy the lowest priced good, and gold will flow into the most efficient economies. This flow of gold into the more productive economy will then increase the money supply, and produce sufficient inflationary pressure to offset the original drop in prices in the more productive economy, and would reduce the circulating specie in the less productive economies, forcing prices down until equilibrium was restored. Central banks, in order to limit gold outflows, would reinforce this by raising interest rates, so as to bring prices back into international equilibrium more quickly. In theory, as long as nations remained on the gold standard, there would be no sustained period of either high inflation, or uncontrolled deflation. Since, at the time, it was believed that markets internally always clear (See Say's Law), and that deflation would alter the price of capital first, it meant that this would reduce the price of capital, and allow more growth as well as long term price stability. ===Advocates of a renewed gold standard === Thus, the internal gold standard is supported by anti-government economists, including extreme monetarism, Objectivist philosophy, followers of the Austrian School and even many proponents of libertarianism. Much of the support for a gold standard is related to a distrust of central banks and governments, as a gold standard removes the ability of a government to manage the value of money, even though, historically, the establishment of a gold standard was part of establishing a national banking system, and generally a central bank. The international gold standard still has advocates who wish to return to a Bretton Woods system—style system, in order to reduce the volatility of currencies, but the unworkability of Bretton Woods, due to its government-ordained exchange ratio, has allowed the followers of Austrian economists Ludwig von Mises, Friedrich Hayek and Murray Rothbard to foster the idea of a total emancipation of the gold price from a State-decreed rate of exchange and an end to government monopoly on the issuance of gold currency. Many nations back their currencies in part with gold reserves, using these not to redeem notes, but as a store of value to sell in case their currency is attacked or rapidly devalues. Gold advocates claim that this extra step would no longer be necessary since the currency itself would have its own intrinsic store of value. A Gold Standard then is generally promoted by those who regard a stable store of value as the most important element to business confidence. It is generally opposed by the vast majority of governments and economists, because the gold standard has frequently been shown to provide insufficient flexibility in the money supply and in fiscal policy, because the supply of newly mined gold is finite and must be carefully husbanded and accounted for. A single country may also not be able to isolate its economy from depression or inflation in the rest of the world. In addition, the process of adjustment for a country with a payments deficit can be long and painful whenever an increase in unemployment or decline in the rate of economic expansion occurs. One of the foremost opponents of the gold standard was John Maynard Keynes who scorned basing the money supply on "dead metal". Keynesianism argue that the gold standard creates deflation (economics) which intensifies recessions as people are unwilling to spend money as prices fall, thus creating a downward spiral of economic activity. They also argue that the gold standard also removes the ability of governments to fight recessions by increasing the money supply to boost economic growth. Gold standard proponents point to the era of industrialization and globalization of the 19th century as the proof of the viability and supremacy of the gold standard, and point to Britain's rise to being an imperial power, conquering nearly one quarter of the world's population and forming a trading empire which would eventually become the Commonwealth of Nations as imperial provinces gained independence. Gold standard advocates have a strong following among commodity traders and hedge funds with a bearish orientation. The expectation of a global fiscal meltdown, and the return to a hard gold standard has been central to many hedge financial theories. More moderate goldbugs point to gold as a hedge against commodity inflation, and a representation of resource extraction, in their view gold is a play against monetary policy follies of central banks, and a means of hedging against currency fluctuations, since gold can be sold in any currency, on a highly liquid world market, in nearly any country in the world. For this reason they believe that eventually there will be a return to a gold standard, since this is the only "stable" unit of value. That monetary gold would soar to $5,000 an ounce, over 10 times its current value, may well have something to do with some of the advocacy of a renewed gold standard, holders of gold would stand to make an enormous profit. Few economists today advocate a return to the gold standard. Notable exceptions are some proponents of Supply-side economics and some proponents of Austrian Economics. However, many prominent economists, while they do not advocate a return to gold, are sympathetic with hard currency basis, and argue against fiat money. This school of thought includes US central banker Alan Greenspan and macro-economist Robert Barro. The current monetary system relies on the US Dollar as an "anchor currency" which major transactions, such as the price of gold itself, are measured in. Currency instabilities, inconvertibility and credit access restriction are a few reasons why the current system has been criticized, with a host of alternatives suggested, including energy based currencies, market baskets of currencies or commodities. Gold is merely one of these alternatives. The reason these visions are not practically pursued is based on the same reasons that the gold standard fell apart in the first place: a fixed rate of exchange decreed by governments has no organic relationship between the supply and demand of gold and the supply and demand of goods. Thus gold standards have a tendency to fall apart as soon as it becomes advantageous for governments to overlook them. By itself, the gold standard does not prevent nations from switching to a fiat currency when there is a war or other exigency, even though gold gains in value through such circumstances as people use it to preserve value since fiat currency is typically introduced to allow deficit spending, which often leads to either inflation or to rationing. The practical difficulty that gold is not currently distributed according to economic strength is also a factor: Japan, while one of the world's largest economies, has gold reserves far less than would be required to support that economy. Finally the quantity of gold available for reserves, even if all of it were confiscated and used as the unit of account, would put the value of gold upwards of 5000 dollars an ounce on a purchasing parity basis. If the current holders of gold imagine that this is the price that they will be paid for giving up their gold, they are quite likely to be disappointed. For these practical reasons — inefficiency, misallocation, instability, and insufficiency of supply — the gold standard is likely to be more honoured in literature than practiced in fact. == Gold as a reserve today == Sveriges_Riksbank,_still_form_an_important_currency_reserve_and_store_of_private_wealth.">image:Gold ingots.jpg|thumb|200px|right|Gold ingots like these, from the Sveriges Riksbank, still form an important currency reserve and store of private wealth. During the 1990s Russia liquidated much of the former USSR's gold reserves, while several other nations accumulated gold in preparation for the Economic and Monetary Union. The Swiss Franc left a full gold-convertible backing. However, official gold reserves are held in significant quantity by many nations as a means of defending their currency, and hedging against the US Dollar, which forms the bulk of liquid currency reserves. Weakness in the US Dollar tends to be offset by strengthening of gold prices. Gold remains a principal financial asset of almost all central banks alongside foreign currencies and government bonds. It is also held by central banks as a way of hedging against loans to their own governments as an "internal reserve". In addition to other precious metals, it has several competitors as store of value: the US dollar itself and real estate. As with all stores of value, the basic confidence in property rights determines the selection of which one is chosen, as all of these have been confiscated or heavily taxed by governments. In the view of gold investors, none of these has the stability that gold had, thus there are occasionally calls to restore the gold standard. Occasionally politicians emerge who call for a restoration of the gold standard, particularly from the libertarianism right and the anti-government left. Mainstream conservative economists such as Barro and Greenspan have admitted a preference for some tangibly backed monetary standard, and have stated that a gold standard is among the possible range of choices. Some privately issued modern notes (such as e-gold) are backed by gold bullion, and gold. Both coins and bullion are widely traded in deeply liquid markets, and therefore still serve as a private store of wealth. In effect, the holder of such currencies is long gold, short their own currency and writing checks on their account. In 1999, to protect the value of gold as a reserve, European Central Bankers signed the "Washington Agreement", which stated they would not allow gold leasing for speculative purposes, nor would they "enter the market as sellers" except for sales that had already been agreed upon. A selling band was set. This was intended to prevent further deterioration in the price of gold. (See Washington Consensus) In 2001 Malaysian Prime Minister Mahathir bin Mohamad proposed a new currency that would be used initially for international trade between Muslim nations. The currency he proposed was called the gold dinar and it was defined as 4.25 grams of 24 carat (100%) gold. Mahathir Mohamad promoted the concept on the basis of its economic merits as a stable unit of account and also as a political symbol to create greater unity between Islamic nations. ==See also== * Digital gold currencies * Goldbug * International Monetary Fund * World Bank == References == * The Gold Standard in Theory and History, Barry Eichengreen (Editor), Marc Flandreau, 1997, ISBN 0415150612 * The Gold Standard and Related Regimes : Collected Essays (Studies in Macroeconomic History), Michael D. Bordo (Editor), Forrest Capie (Editor), Angela Redish (Editor), 1999, ISBN 0521550068 * A Retrospective on the Classical Gold Standard, 1821–1931 (National Bureau of Economic Research Conference Report), Michael D. Bordo (Editor), Anna J. Schwartz (Editor), 1984, ISBN 0226065901 * Between the Dollar-Sterling Gold Points: Exchange Rates, Parity, and Market Behavior. Lawrence H. Officer, Cambridge University Press, 1996 * Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 (NBER Series on Long-Term Factors in Economic Development), Barry Eichengreen, 1996, ISBN 0195101138 * Money and Politics: European Monetary Unification and the International Gold Standard (1865–1873) Luca Einaudi 2001 * Keynes, the Liquidity Trap and the Gold Standard: A Possible Application of the Rational Expectations Hypothesis, Robert Marks 1995 * Ideology and the Evolution of Vital Economic Institutions: Guilds, The Gold Standard, and Modern International Cooperation Earl A. Thompson, Charles R. Hickson, 2000 * Gold Standard and Employment Policies between the Wars, Sidney Pollard Ed. 1970 * Stability of International Exchange: Report on the Introduction of the Gold-Exchange Standard into China and Other Silver-Using Countries, Commission on International Exchange, 2001 * [http://www.predecimal.com/p1celtic.htm] Ken Elks' series on British Coinage * Banking in Modern Japan Research Division of the Fuji Bank, 1967 * Bordo, Michael D. "Bimetallism". In The New Palgrave Encyclopedia of Money and Finance edited by Peter K. Newman, Murray Milgate and John Eatwell. New York: Stockton Press, 1992. * Gold Standard and the International Monetary System, 1900–1939, Ian M. Drummond 1983 * The Gold Standard in Theory and Practice, RG Hawtrey, Longmans and Green * Glitter of Gold: France, Bimetallism, and the Emergence of the International Gold Standard, 1848–1873 Marc Flandreau 2003 * Cyclopædia of Political Science, Political Economy, and the Political History of the United States by the Best American and European Writers, John Lalor, 1881 * The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison Ben Bernanke, Harold James 1990 * The World Currency Crisis Murray Rothbard * The Downfall of the Gold Standard Gustav Cassel 1966 * Currency Convertibility: The Gold Standard and Beyond Jorge Braga de Macedo (Editor) 1996 * Deceit of the Gold Standard and of Gold Monetization, William H. Russell 1982 * Gold, Prices and Wages under the Greenback Standard Wesley Clair Mitchell * Gold Standard Illusion: France, the Bank of France, and the International Gold Standard, 1914–1939 Kenneth Moure * Modern Perspectives on the Gold Standard Tamim Bayoumi (Editor), Mark P. Taylor (Editor), 1997 * Keynes, John M. 1925; ''The Economic Consequences of Mr. Churchill'' (Criticism of returning to the gold standard at the pre-war level – [http://www.gold.org/value/reserve_asset/history/monetary_history/vol2/1925jul.html]) * A Treatise on Money, John Maynard Keynes 1930 * Credibility of the Interwar Gold Standard, Uncertainty, and the Great Depression J. Peter Ferderer 1999 * Monetary Standards in the Periphery: Paper,Silver and Gold,1854–1933, Pablo Martin Acena (Editor), Jaime Reis (Editor), 2000 * [http://www.bankofengland.co.uk/natcentral.htm History of the Bank of England] The Bank of England updated 2004 * Anatomy of an International Monetary Regime: The Classical Gold Standard, 1880–1914 Guilio M Gallarotti * Canada and the Gold Standard: Balance of Payments Adjustments under Fixed Exchange Rates 1871–1913 Trevor Dick, John E. Floyd 1992 * == External links == * [http://www.gata.org Gold Anti-Trust Action Committee website] * [http://www.the-privateer.com/1933-gold-confiscation.html The Roosevelt Gold Confiscation Order Of April 3 1933] * [http://www.fdic.gov/regulations/laws/rules/5000-200.html FDIC statement of policy regarding Public Law 93-373] * [http://www.galmarley.com/framesets/fs_header_page_for_faqs.htm Gold information for researchers] ===Articles=== * [http://www.321gold.com/fed/greenspan/1966.html "Gold and Economic Freedom"] by Alan Greenspan * [http://www.pkarchive.org/cranks/goldbug.html The Gold Bug Variations] by Paul Krugman describes the gold standard as an "economic myth". * [http://wanniski.com/searchbase/gp1.htm ''A Gold Polaris''] by Jude Wanniski (Advocates for a return to a gold standard) * [http://home.att.net/~Resurgence/L-gold.htm Fact: The gold standard causes deflation and depressions] — A Keynesian economics view of the gold standard. * [http://www.nber.org/papers/W6060 NBER on the contribution of the Gold Standard to the Great Depression] * [http://iraqwar.mirror-world.ru/article/47820 Churchill Gold and the Empire - History of Churchill's decision to return the Sterling Pound back to the Gold Standard] Money Gold International trade
I added the copyedit tag because some of the text is duplicated and some of the grammar is questionable. I haven't the time to fix it at the moment. -------- Selected on Template:March 18 selected anniversaries (may be in HTML comment) -------- I presume that "reasons why" in the article as it was were those given by the Nixon Administration - the opposing view is attributable to nearly everyone who commented on the Euro-dollar. Pick your source. I'll stand by the fact that there was no way there was enough gold in Fort Knox to redeem the notes in 1975, and no way to test for it, since US citizens couldn't own gold and Europeans couldn't redeem notes.24 ------ Well duh........ U.S. currency was representative money and as such no one ever pretended that the United States had the gold reserves to redeem all the dollars in circulation if everyone decided to redeem their dollars at the same time. :ok, this is our "representative" versus "commodity" argument again. I think it arises because really there is some degree of commodity, credit, and fiat involved in *every* kind of money. In other words we should not write about "commodity money" but rather "commodity settling", and likewise "credit clearing", and "fiat backing" - any of which may be involved in a given currency. The trouble was that in 1971 to 1974, everyone *did* decide to redeem their dollars at the same time because the dollar was seriously undervalued with respect to its nominal value in gold (and this was the result of Johnson administration deficit funding for Vietnam and the Great Society). :more than that - there was the counterfeiting and Eurodollar problems there in the background too - but all grist for the mill. Those were causes of a balance of trade problem. As such the Bretton Woods system broke down. :yup. Except the also-broken Bank for International Settlements was never fixed, nor the IMF... 24, the fact that you don't seem to know what the gold standard (and for that matter what commodity money is) makes it very difficult for me to take anything you have to say regarding economics seriously. :and, the fact that you don't use "is" the way I do makes it hard for me to believe you understand how money itself works. I find it very hard to believe that I would understand the ultra-complex arguments around flags, brands and labels, and simultaneously not understand the simple silly ones around gold. but, it's always possible, certainly the article as it is has benefitted from your rewrite, and from my bringing up the issue of non-convertibility and insolvency. 24 ------ Currently the first paragraph reads as follows: :The gold standard was a monetary system in which paper money was convertible on demand into gold. Under such a system money represents gold: coins are made of the corresponding amount of gold, and/or coins and notes represent an amount of gold held in a vault somewhere. Banknotes were issued fractionally backed by gold (i.e. gold reserves were a fixed proportion of the value of the notes in circulation). Rates of exchange between countries were fixed by their currency values in gold. Most financially important countries were on the gold standard from 1900 until its suspension during World War I because of the problems of transporting gold. It was reintroduced in 1925 but finally abandoned in 1931. Several issues with this: #With regard to ''"Banknotes were issued fractionally backed by gold"'' etc. This is inappropriate. It is not part of the "Gold Standard" but part of the Fractional reserve banking system and therefore does not belong on this page. #Regarding ''"Rates of exchange between countries were fixed by their currency values in gold"'' This issue is handled further down the page. The repeat, in this sentence should be removed since it does not need double treatment when it covered properly further down. #With regard to ''"gold standard from 1900 until its suspension during World War I because of the problems of transporting gold"'' This is simply not true. Gold is transported even now, and often gold does not need to be transported, but simply becomes reallocated in the COMEX vaults et. al. More to the point, it is a silly thing to say on the face of it. If transporting live cattle, copper, aluminium, rice, corn, and wheat by ship is economically viable, then why not gold? If User:172 has reason for this comment, then I would be interested in reading about it. #With regard to ''"It was reintroduced in 1925 but finally abandoned in 1931."'' This is untrue on the face of it. There is no mention where "it" was reintroduced in 1925. In fact what was ''"introduced"'' was the Gold Exchange Standard in Britain and parts of Europe, not the gold standard per se, and I believe that was in 1926, not 1925. Here is my suggested replacement for the currently rather muddled and inaccurate first paragraph: :The gold standard was a monetary system in which paper money was convertible on demand into gold. Under such a system money represents gold: coins are made of the corresponding amount of gold, and/or coins and notes represent an amount of gold held in a vault somewhere. :When banknotes were issued fractionally backed by gold (i.e. gold reserves were a fixed proportion of the value of the notes in circulation) this was the Fractional reserve banking system, and should not be mistaken for a true Gold Standard. I suggest User:172 cease attempting to revert this page to eliminate these changes. -- User:Octothorn 20:09, 17 Aug 2003 (UTC) ----- Quit trying to get away with pushing an agenda. So far you've been able to do it because the articles dealing with economics have always gotten a low degree of interest around here. Articulate the distinctions between the prewar "classical gold standard" and the postwar "gold exchange standard" in this article, if you want. Please review the NPOV guidelines so that you'd realize that it is inappropriate to try to sneak in your advocacy piece and veiled theses. The Gold Exchange Standard was a gold standard, just not a restoration of the classical prewar system per se. I added a good deal to the article since, and it should clarify what set the classical gold standard and the Gold Exchange Standard apart. User:172 07:29, 18 Aug 2003 (UTC) ---- Volunteer to make it less UK-US centered? --User:Ann O'nyme 21:15, 31 Aug 2003 (UTC) :Sure, go for it. I would've done it much earlier had I had time. 172's been fairly inactive for the past few weeks. Next week, however, I'll make my presence known once again. User:172 22:26, 31 Aug 2003 (UTC) ---- The History section has a rather large chronological jump from the Sumerians directly to the year 1824. Volunteer for some history in between, particularly with regards to the large Spanish movements of gold and silver from the New World to the Old and what effect that had? User:Tempshill 06:25, 23 Oct 2003 (UTC) ----- Move here for discussion :Nixon's move to cease allowing foreign Governments to redeem dollars for precious metal was the final act in a 150-year-long 'transfer' of the citizen's gold and silver to the Federal Government's vault. This allowed the U.S. Government to have much more freedom in determining the rate of printing and volume in circulation of its Fiat money currency. ---- Need source ::Tantalum is also suggested as an alternative money supply standard, since even in an economy based on molecular engineering it would remain extremely difficult to forge - and remain quite easy to hide. User:Roadrunner 00:48, 30 Apr 2004 (UTC) ''A proposal was floated to stabilize exchange rates between France, Great Britain and the United Kingdom based on a system of drawing rights, but this too collapsed.'' I have changed Kingdom to read States as I assume that was what was originally intended. --User:Spencer BOOTH 07:17, 15 Jul 2004 (UTC) ---- The picture at the top is far too large and doesn't really add much to the article. Could someone reduce it to a smaller png and put it in a more appropriate place? User:Lisiate 00:09, 28 Jul 2004 (UTC) ------ "a questionable assumption in light of the spending binge of George W. Bush" removed from the Washington concensus secion. It just seemed too POV. I am, however, not sure how to word it better. -User:Vina 20:30, 3 Aug 2004 (UTC) cited source of the contention - namely the International Monetary Fund. That Bush has run up massive deficits, that those deficits are structural and that they are destabilizing the international currency system are matters beyond dispute, and are not disputed by anyone not employed by the RNC or its subsidiaries. So sorry, facts are stubborn things here. User:Stirling Newberry 23:23, 3 Aug 2004 (UTC) :ahem, try debt vs. GDP (or debt as % of GDP). Plenty of sources. The US debt currently is lower than it is in the early 1990's. The rate of increase is high, that is not disputed, but neither is it higher than the rate of increase in the late 1980's and early 1990's. So sorry, facts are stubborn things here. -User:Vina 23:31, 3 Aug 2004 (UTC) :Did some more research on the IMF site. Included a summary in that section. Note that they are concerned about trends exhibited since 1999, and that they are also concerned about household spending. Hopefully this is more acceptable to you? -User:Vina 00:25, 4 Aug 2004 (UTC) I will not be editing this page any more as I do not believe in getting to edit wars. In closing, I will mentioned that I still think what you wish to add is POV, not extremely, but still POV. -User:Vina 05:11, 4 Aug 2004 (UTC) I'm reporting what the IMF has said about the need for a stable anchor currency and current US fiscal policy. "Tax increases will be needed to maintain the stability of the US dollar". It's also what comes straight out of the Fleming-Mundell model, namely that running a consistent budget deficit will continue to negatively impact the balance of trade, and therefore devalue the dollar. Find a model that says otherwise, and report on what it says. User:Stirling Newberry 08:31, 4 Aug 2004 (UTC) :Sigh, I never objected to the model, merely the personal attack. In all my research, I've only seen the comment on Jan 7, 04 about Bush, and that was 1 paper published by 1 analyst. In no other statement does the IMF come across so harshly, not even when it criticised the tax cuts 2 years ago did it comment that harshly (incidentally, the IMF now acknowledges the role the tax cuts did in bringing the world out of recession.) The papers that you refer to, those released July 30th, and accessible from the IMF front page, do not mention Bush by name (At least, what I (did not) find via an Acrobat Reader search.) Statements like the foreign debt being an "unprecedented" 40% of GDP is without base (the unprecedented part, not the 40% part) as Japan has one above 100%, and many euro nations are hovering around 70%. I have not seen the IMF follow up on the Collyns paper all that much. They have valid concerns, and writing about them is perfectly fine with me. it's the personal attack part that I feel is POV. -User:Vina 16:39, 4 Aug 2004 (UTC) Sigh again - someone else proposed the tax packages? They were submitted to congress by Bush, who in fact wanted larger revenue reductions in 2003 than were finally passed. Again, "attacks" and what people wanted to be said are all well and good, but the documentable facts at hand are: 1. The tax policy is driven by the current US executive 2. Every economic model I have seen - including the ones from OMB and CBO - indicate structural deficits and continued devaluation of the US dollar. If you feel someone else is responsible for the tax reductions, I am sure we'd all be fascinated to know who that is. If you have a model which indicates that the IMF is wrong - and they've been wrong before - then by all means present it. I simply haven't found one. User:Stirling Newberry 00:44, 5 Aug 2004 (UTC) Why were the sections "Post-War International Gold Standard (1946-1971)" and "The Washington Consensus" removed? They were acting as summaries of main articles. User:172 01:01, 5 Aug 2004 (UTC) Space considerations, and because as the author of the history section, it was better and more consistent to refer to the more extensive Bretton Woods article, so that issues could be resolved once, rather than multiple times. I've removed the Washington Consensus section because it is clear there are issues that need to be resolved which are not germane to the question of a gold standard per se. User:Stirling Newberry 01:15, 5 Aug 2004 (UTC) :And as the author of the more extensive Bretton Woods article, I think that there ought to be condensed summaries of that article available in entries on broader, encompassing topics. Some readers like detail while other types of readers want the most important facts in a condensed format. Space considerations are not a major concern; there are plenty of articles on important, broad, and complex subjects that take up well over 32K. User:172 01:29, 5 Aug 2004 (UTC) :Just to add to the above, I'm not saying that a summary of the Washington Consensus article belongs here. However, at least a few concluding remarks on the Washington Consensus that are germane to the question of the gold standard will be helpful. User:172 01:40, 5 Aug 2004 (UTC) ----- With regard to the following paragraph in the text: :"After the collapse of the empire in the West, and the decline of the mines in Europe which were largely played out, the Byzantine empire continued to mint successor coins to the solidus, called the nomisma or bezant. They were forced to mix more and more base metals with gold, until by the turn of the millennium the coins in circulation were only 25% gold by weight, a tremendous drop from the 95% pure old Roman coins. Increasingly trade was conducted in a coin struck in the Arabic world using gold from Africa: the dinar." In the first sentence, whiile the Bezant was the successor coin to the Solidus, they became two names for the same coin [1]. The Greeks of the Byzantine Empire now called the old circulating Solidus by the name of the new Byzantine issues of the old coin, the Bezant [2]. The second sentence beginnning with the words "They were forced..." is inappropriate. "They" - the Byzantine Empire - were not forced to degrade the purity of the coin. If they were, someone ought to provide the text with some indication of what it was that "forced" them, otherwise the use of the word "forced" should be removed. The reason for the degradation of the coin is simple, and nobody was forced do do so - "they" just wanted to be able to mint more coins for themselves using the same amount of gold. This is the same reason any government has ever had for degrading the purity of gold coins, a form of embezzlement - they get something for nothing. More importantly, however, that sentence is inaccurate. The Bezant was not degraded as quickly as indicated. It circulated from the early fourth century, continuing until Emperor Michael IV (1034 - 1041) began to degrade it's purity. Prior to that tiime the Bezant circulated at it's full weight and purity. The Bezant was therefore stable for a period of about 700 years [2]. The final sentence is also inaccurate. The Dinar was modelled on the Bezant and the earlier Solidus [1][2]. Essentially it was the same coin, just minted by the Arab Empire. Consequently both the Dinar and Bezant circulated alongside one another. The text should also draw attention to the fact that the Dinar circulated for about 450 years unchanged, from the late 7th century to the mid-12th century, during which time the Saracen Arab civilisation flourished until it callapsed in religious turmoil. The Solidus the Bezant and then the Dinar were all gold coins of the same gold content (4.4 grams at 22 carats) which at times circulated alongside one another. In this way a gold standard based on a single form of gold coin was maintained for a thousand years, surviving three empires. References: :[1]"Trade Coins" http://www.cyberussr.com/hcunn/gold-co.html, by Hugo S. Cunningham -- Valid as at 2004-09-06T11:00:20+10:00 :[2]"Gold Wars", by Ferdinand Lips, 2001, Pages 3-6. :[3]"Roman Imperial Coinage" http://www.roman-britain.org/coinage.htm -- Valid as at 2004-09-06T11:00:20+10:00 User:Octothorn 01:06, 6 Sep 2004 (UTC) Even your own references contradict you - the solidus was debased repeatedly over time, and was, in itself, an attempt to debase the aureus. User:Stirling Newberry 20:11, 27 Dec 2004 (UTC) : Um... Where? And, how in the world would one coin be used to debase another? Coins don't debase coins, people debase coins. The Aureus was already very much reduced in size by the time the soludus was produced. The solidus replaced the aureus. Perhaps you are confusing "replaced" with "debased". User:Octothorn 07:33, 6 Jan 2005 (UTC) ---- The following paragraph near the beginnning of the text appears to be silly, and wording should be reconsidered: :"Typically under a gold standard, the physical transport of gold becomes cumbersome for popular use, and so promissory notes? (which may be either issued privately or by government) to pay in gold at a later date, circulate. These note are convertible into physical gold on demand. Also known as demand notes?, (see paper money)." The idea that "physical transport of gold becomes cumbersome for popular use" is amusing. An 8 gram gold coin (nominal value of $5) carries US$100 worth of gold. Notes larger than $100 are seldom used. While a $100 note may not be quite as "cumbersome" as such a coin, the coin is certainly more durable. One may also suggest that if a single 8 gram coin representing $100 is "cumbersome for popular use", then the quarter, currently in "popular use", must then be over 400 times more cumbersome than a gold coin. :Originally large volumes of gold were required to make large purchases. While carrying 100 dollars worth of gold is not a problem, the volume of gold required for the annual wheat import of Rome would run a great deal more. The cost in silver of a chest of opium weighed thirty times as much as the chest itself. And in the present, larger bills are less common because of checks, credit cards and other instruments. That is to say, because even paper money is too cumbersome for popular use. User:Stirling Newberry 20:11, 27 Dec 2004 (UTC) : Surely you haven't forgotten that checks are claims on bank deposits, not money. Also, credit is credit, not money. Neither can circulate as currency. The text suggests that gold is more cumbersome than cash, but that is not true. Notes, originally issued as claims on a quantity of gold, are now so devalued that they are about as cumbersome as gold. Suggestions that gold is more cumbersome than fed reserve notes are not relevent or constructive to the issue, and the comment as it stands lacks NPOV ansd should be removed. User:Octothorn 07:58, 6 Jan 2005 (UTC) The subject of notes should still be raised, since the page carries an image of one. What follows is a possible replacement: :The use of gold coins in large transactions is time consuming and prone to error. Centuries ago the market found a solution to this problem. Goldsmiths would issue notes of claim on gold coins deposited with them. Those coins were not spent, but were held in reserve to cover the notes that were issued. Each transaction involving a large amount of gold was easier with a note. Many consecutive transactions using one note could proceed smoothly. Coins would not need to be counted or transported until the note was redeemed, and each note could be exchanged for goods over and over. :This has also been true in more recent times, as with the 1922 U.S. Gold Certificate shown on this page. This $100 note was a claim on about five ounces of gold coins, or $2000 worth of gold in the year 2004. Notes similar to that pictured were issued to the depositor as a claim on gold coins. The benefit of using something like the replacement above is that it outlines the need for notes in large transactions and the function of gold certificates. It also links the text to the image, giving the reader some perspective on what the note is worth. User:Octothorn 04:29, 6 Sep 2004 (UTC) graf was replaced with a graf on the general advantages of paper money within the context of a specie based monetary system User:Stirling Newberry 20:11, 27 Dec 2004 (UTC) ---- == Needs more pictures == For a featured article, especially now highlighted on the main page, this article needs more pictures. I added one of gold ingots held by the Bank of Sweden, but I'm sure others could be found. Curiously, I could not find one image of a gold coin on Wikipedia. Perhaps you may have better luck than I, or find other relevant images.--User:Pharos 20:22, 21 Jan 2005 (UTC) ---- Britain was almost immediately forced to gradually end its gold standard Immediate and gradual at the same time? User:Ubermonkey 21:16, 21 Jan 2005 (UTC) == too long.. == Interesting, but too long and often redundant. The proponats' and oponents' viewpoints are presented over and over again, this needs to be made more compact.
See other meanings of words starting from letter:
Words begining with Gold_Standard:
Gold_Standard
Gold_standard
Gold_standard
Gold_standard_(test)
Gold_Standard_Act
Gold_Standard_Laboratories
Gold_Standard_Labs
Gold Standard
#REDIRECT Gold standard
Gold standard
:''This article is on the monetary principle. For gold standard in diagnostic testing, see gold standard (test).'' The gold standard is a monetary system in which the standard economics unit of account is a fixed weight of gold. When several nations are using such a fixed unit of account, the exchange rate among national currencies effectively become fixed. The gold standard can also be viewed as a monetary system in which changes in the supply and demand of gold determine the value of goods and services in relation to their supply and demand. == Why gold? == Due to its rarity and durability, gold has long been used as a currency. The exact nature of the evolution of money varies significantly across time and place, though it is believed by historians that gold's high value for its utility, density, resistance to corrosion, uniformity, and easy divisibility made it useful both as a store of value and as a unit of account for stored value of other kinds — in Babylon a bushel of wheat was the unit of account, with a weight in gold used as the token to transport value. Early monetary systems based on grain used gold to represent the stored value. Banking began when gold deposited in a bank could be transferred from one bank account to another by a giro system, or lent at interest. When used as part of a hard-money system, the function of banknote is to reduce the danger of transporting gold, reduce the possibility of debasement of coins, and avoid the reduction in circulating medium to hoarding and losses. The early development of paper money was spurred originally by the unreliability of transportation and the dangers of long voyages, as well as by the desire of governments to control or regulate the flow of commerce within their dominion. Money backed by a specie is sometimes called representative money, and the notes issued are often called certificates, to differentiate them from other forms of paper money. Through most of human history, however, silver was the primary circulating medium and major monetary metal. Gold was the metal that was used as an ultimate store of value, and as means of payment when portability was at a premium, particularly for payment of armies. Gold would supplant silver as the basic unit of international trade at various times, including the Islamic golden age, the peak of the Italian trading states during the Renaissance, and most prominently during the 19th century. Gold would remain the metal of monetary reserve accounting until the collapse of the Bretton Woods system agreement in 1972, and remains an important hedge against the actions of central banks and governments, a means of maintaining general liquidity, and as a store of value. == Early coinage == The first metal used as a currency was silver, before 20th century BC, when silver ingots were used in trade, and it was not until 1500 years later that the first coinage of pure gold was introduced. However, long before this time gold had been the basis of trade contracts in Akkadia, and later in Ancient Egypt. Silver remained the most common monetary metal used in ordinary transactions through the 19th century. The Persian Empire collected taxes in gold and, when conquered by Alexander the Great, this gold became the basis for the gold coinage of his Macedon. The paying of mercenary and army in gold solidified its importance: gold became synonymous with paying for military operations, as mentioned by Niccolò Machiavelli in ''The Prince'' two thousand years later. The Roman Empire mint (coin) two important gold coins: aureus, which was approximately 7 grams of gold alloyed with silver, and the smaller Solidus (coin), which weighed 4.4 grams, of which 4.2 was gold. The Roman mints were fantastically active — the Romans minted, and circulated, millions of coins during the course of the Roman Republic and the Empire. After the collapse of the Western Roman Empire and the exhaustion of the gold mines in Europe, the Byzantine empire continued to mint successor coins to the solidus called the nomisma or bezant. They were forced to mix more and more base metal with the gold until, by the turn of the millennium, the coinage in circulation was only 25% gold by weight. This represented a tremendous drop in real value from the old 95% pure Roman coins. Thus, trade was increasingly conducted via the coinage in use in the Arabic world, produced from African gold: the dinar. The dinar and dirham were gold and silver coins, respectively, originally minted by the Persians. The Caliphates in the Islamic world adopted these coins, but it is with Caliph Abd al-Malik (685–705) who reformed the currency that the history of the dinar is usually thought to begin. He removed depictions from coins, established standard references to Allah on the coins, and fixed ratios of silver to gold. The growth of Islamic power and trade made the dinar the dominant coin from the Western coast of Africa to northern India until the late 1200s, and it continued to be one of the predominant coins for hundreds of years afterwards. In 1284, the Republic of Venice coined their first solid gold coin, the ducat, which was to become the standard of European coinage for the next 600 years. Other coins, the florin, nobel, grosh, zloty, and British coin Guinea, were also introduced at this time by other European states to facilitate growing trade. The ducat, because of Venice's pre-eminent role in trade with the Islamic world and its ability to secure fresh stocks of gold, would remain the standard against which other coins were measured. Beginning with the conquest of the Aztec Empire and Inca Empire, Spain had access to stocks of new gold for coinage in addition to silver. The primary Spanish gold unit of account was the escudo, and the basic coin the 8 escudos piece, or "doubloon", which was originally set at 27.4680 grams of 22 carat (92%) gold, using current measures, and was valued at 16 times the equivalent weight of silver. The wide availability of milled and cob gold coins made it possible for the West Indies to make gold the only legal tender in 1704. The circulation of Spanish coins would create the unit of account for the United States, the "dollar" based on the Spanish silver real, and Philadelphia's currency market would trade in Spanish colonial coins. == History of the modern gold standard == The adoption of gold standards proceeded gradually. This has led to conflicts between different economic historians as to when the "real" gold standard began. Sir Isaac Newton included a ratio of gold to silver in his assay of coinage in 1717 which created a relationship between gold coins and the silver penny which was to be the standard unit of account in the Law of Queen Anne; for some historians this marks the beginning of the "gold standard" in England. However, more generally accepted is that a full gold standard requires that there be one source of notes and legal tender, and that this source is backed by convertibility to gold. Since this was not the case throughout the 18th century, the generally accepted view is that England was not on a gold standard at this time. (See also History of the English penny) === The crisis of silver currency and bank notes (1750–1870) === To understand the adoption of the international gold standard in the late 19th century, it is important to follow the events of the late 18th century and early 19th. In the late 18th century, wars and trade with China, which sold to Europe, but had little use for European goods, drained silver from the economies of Western Europe and the United States. Coins were struck in smaller and smaller amounts, and there was a proliferation of bank and stock notes used as money. In the 1790s England suffered a massive shortage of silver coinage, and ceased to mint larger silver coins, issued "token" silver coins and overstruck foreign coins. With the end of the Napoleonic Wars, England began a massive recoinage program, that created standard gold sovereigns and circulating crowns and half-crowns, and eventually copper farthings in 1821. The recoinage of silver in England after a long drought produced a burst of coins: England struck nearly 40 million shillings between 1816 and 1820, 17 million half crowns and 1.3 million silver crowns. The 1819 Act for the Resumption of Cash Payments set 1823 as the date for resumption of convertibility, reached instead by 1821. Throughout the 1820s small notes were issued by regional banks, which were finally restricted in 1826, while the Bank of England was allowed to set up regional branches. In 1833, however, the Bank of England notes were made legal tender, and redemption by other banks was discouraged. In 1844 the Bank Charter Act established that Bank of England Notes, fully backed by gold, were the legal standard. According to the strict interpretation of the gold standard, this 1844 act marks the establishment of a full gold standard for British money. The US adopted a silver standard based on the "Spanish milled dollar" in 1785. This was codified in the 1792 Coinage Act (1792), and by the Federal Government of the United States's use of the "Bank of the United States" to hold its reserves, as well as establishing a fixed ratio of gold to the United States dollar. This was, in effect, a derivative silver standard, since the bank was not required to keep silver to back all of its currency. This began a long series of attempts for America to create a bimetallic standard for the US Dollar, which would continue until the 1920s. Gold and silver coins were legal tender, including the Spanish real, a silver coin struck in the Western Hemisphere. Because of the huge debt taken on by the US Federal Government to finance the American Revolution, silver coins struck by the government left circulation, and in 1806 Thomas Jefferson suspended the minting of silver coins. The United States Department of the Treasury was put on a strict hard money standard, doing business only in gold or silver coin as part of the Independent Treasury Act of 1848, which legally separated the accounts of the Federal Government from the banking system. However the fixed rate of gold to silver overvalued silver in relation to the demand for gold to trade or borrow from England. The drain of gold in favor of silver led to the search for gold, including the "California Gold Rush" of 1849. Following Gresham's law, silver poured into the US, which traded with other silver nations, and gold moved out. In 1853 the US reduced the silver weight of coins, to keep them in circulation, and in 1857 removed legal tender status from foreign coinage. In 1857 the final crisis of the free banking era of international finance began, as American banks suspended payment in silver, rippling through the very young international financial system of central banks. In the United States this collapse was a contributory factor in the American Civil War, and in 1861 the US government suspended payment in gold and silver, effectively ending the attempts to form a silver standard basis for the dollar. Through the 1860–1871 period various attempts to resurrect bi-metallic standards were made, including one based on the gold and silver franc, however, with the rapid influx of silver from new deposits, the expectation of scarcity of silver ended. The interaction between central banking and currency basis formed the primary source of monetary instability during this period. The combination that produced economic stability was restriction of supply of new notes, a government monopoly on the issuance of notes directly and indirectly, a central bank and a single unit of value. Attempts to evade these conditions produced periodic monetary crisis — as notes devalued, or silver ceased to circulate as a store of value, or there was a depression as governments, demanding specie as payment, drained the circulating medium out of the economy. At the same time there was a dramatically expanded need for credit, and large banks were being chartered in various states, including, by 1872, Japan. The need for a solid basis in monetary affairs would produce a rapid acceptance of the gold standard in the period that followed. === Establishment of the International Gold Standard (1871–1900) === Germany was created as a unified country following the Franco-Prussian War; it established the Reichsmark, went on to a strict gold standard, and used gold mined in South Africa to expand the money supply. Rapidly most other nations followed suit, since gold became a transportable, universal and stable unit of valuation. See Globalization. Dates of Adoption of a Gold Standard: * Germany 1871 * Latin Monetary Union 1873 (Belgium, Italy, Switzerland, France) * United States 1873 de facto * Scandinavia 1875 by monetary Union: Denmark, Norway and Sweden * Netherlands 1875 * France internally 1876 * Spain 1876 * Austria 1879 * Russia 1893 * Japan 1897 * India 1898 * United States 1900 de jure. Throughout the decade of the 1870s deflationary and depressionary economics created periodic demands for silver currency. However, such attempts generally failed, and continued the general pressure towards a gold standard. By 1879, only gold coins were accepted through the Latin Monetary Union, composed of France, Italy, Belgium, Switzerland and later Greece, even though silver was, in theory, a circulating medium. By creating a standard unit of account which was easily redeemable, relatively stable in quantity, and verifiable in its purity, the gold standard ushered in a period of dramatically expanded trade between industrializing nations, and "periphery" nations which produced agricultural goods — the so called "bread baskets". This "First Era of Globalization" was not, however, without its costs. One of the most dramatic was the Irish Potato Famine, where even as people began to starve it was more profitable to export food to Britain. The result turned a blight into a humanitarian disaster. Amartya Sen in his work on famines theorized that famines are caused by an increase in the price of food, not by food shortage itself, and hence the root cause of trade based famines is an imbalance in wealth between the food exporter and the food importer. At the same time it caused a dramatic fall in aggregate demand, and a series of long Depressions in the United States and the United Kingdom. This should not be confused with the failure to industrialization or a slowing of total output of goods. Thus the attempts to produce alternate currencies include the introduction of Postal Money Orders in Britain in 1881, later made legal tender during World War I, and the "United States Greenback Party" party in the US, which advocated the slowing of the retirement of paper currency not backed by gold. By encouraging industrial specialization, industrializing countries grew rapidly in population, and therefore needed sources of agricultural goods. The need for cheap agricultural imports, in turn, further pressured states to reduce tariffs and other trade barriers, so as to be able to exchange with the industrial nations for capital goods, such as factory machinery, which were needed to industrialize in turn. Eventually this pressured taxation systems, and pushed nations towards income and sales taxes, and away from tariffs. It also produced a constant downward pressure on wages, which contributed to the "agony of industrialization". The role of the gold standard in this process remains hotly debated, with new articles being published attempting to trace the interconnections between monetary basis, wages and living standards. By the 1890s in the United States, a reaction against the gold standard had emerged centered in the U.S. South and Great Plains. Many farmers began to view the scarcity of gold, especially outside the banking centers of the East, as an instrument to allow Eastern bankers to instigate credit squeezes that would force western farmers into widespread debt, leading to a consolidation of western property into the hands of the centralized banks. The formation of the United States Populist Party in Lampasas, Texas specifically centered around the use of "easy money" that was not backed by gold and which could flow more easily through regional and rural banks, providing farmers access to needed credit. Opposition to the gold standard during this era reached its climax with the U.S. presidential election, 1896 of Democratic Party (United States) William Jennings Bryan of Nebraska. Bryan argued against the gold standard in his Cross of gold speech in 1896, comparing the gold standard (and specifically its effects on western farmers) to the crown of thorns worn by Jesus at his crucifixion. After being defeated in 1896, Bryan ran and lost again in U.S. presidential election, 1900 and U.S. presidential election, 1908, each time carrying mostly Southern and Great Plains states. The key change in this period was the adoption of a monetary policy to raise interest rates in response to gold outflows, or to maintain large stocks of gold in the reserves of the central bank. This policy created a credibility of commitment to the gold standard. According to Lawrence Officer and Alberto Giovanni, this can be seen from the relationship between the Bank of England rate, and the flow between the pound and the dollar, mark and franc. From 1889 through 1908, the pound maintained a direct bank rate rule relationship with the dollar 99% of the time, and 92% of the time with the mark. Thus, according to the theory of gold standard monetary dynamics, the key to this credibility was the willingness of the Bank of England to make adjustments to the discount rate to stabilize sterling to other currencies in the gold, or de facto gold, standard world, during the peak period of the gold standard composed of 360 months, the Bank of England bank rate was adjusted over 200 times in response to gold flows, a rate of change higher than current central banks. === Gold Standard from peak to crisis (1901–1932) === By 1900 the need for a lender of last resort had become clear to most major industrialized nations. The importance of central banking to the financial system was proven largely by examples such as the 1890 bail out of Barings Bank by the Bank of England. Barings had been threatened by imminent bankruptcy. Only the United States still lacked a central banking system. There had been occasional panics since the end of the depressions of the 1880s and 1890s which some attributed to the centralization of production and banking. The increased rate of industrialization and imperial colonization, however, had also served to push living standards higher. Peace and prosperity reigned through most of Europe, albeit with growing agitation in favor of socialism and communism because of the extremely harsh conditions of early industrialization. This came to an abrupt halt with the outbreak of World War I. United Kingdom was almost immediately forced to take steps that would lead to its gradually leaving its gold standard, ending convertibility to Bank of England notes starting in 1914. By the end of the war England was on a series of fiat currency regulations, which monetized Postal Money Orders and Treasury Notes. The need for larger and larger engines of war, including battleships and munitions, created inflation. Nations responded by printing more money than could be redeemed in gold, effectively betting on winning the war and redeeming out of reparations, as Germany had in the Franco-Prussian War. The US and the UK both instituted a variety of measures to control the movement of gold, and to reform the banking system, but both were forced to suspend use of the gold standard by the costs of the war. The Treaty of Versailles instituted punitive reparations on Germany and the defeated Central Powers, and France hoped to use these to rebuild her shattered economy, as much of the war had been fought on French soil. Germany, facing the prospect of yielding much of her gold in reparations, could no longer coin gold "Reichsmarks", and moved to paper currency. The series of arrangements to prop up the gold standard in the 1920s would constitute a book length study unto themselves, with the Dawes Plan superseded by the Young Plan. In effect the US, as the most persistent positive balance of trade nation, loaned the money to Germany to pay off France, so that France could pay off the United States. After the war, the Weimar Republic suffered from hyperinflation and introduced "Rentenmarks", an asset currency, to halt it. These were withdrawn from circulation in favor of a restored gold Reichsmark in 1924. In the UK the pound (currency) was returned to the gold standard in 1925, by the somewhat reluctant Chancellor of the Exchequer Winston Churchill, on the advice of conservative economists at the time. Although a higher gold price and significant inflation had followed the WWI ending of the gold standard, Churchill returned to the standard at the pre-war gold price. For five years prior to 1925 the gold price was managed downward to the pre-war level, meaning a significant deflation (economics) was forced onto the economy. John Maynard Keynes was one economist who argued against the adoption of the pre-war gold price believing that the rate of conversion was far too high and that the monetary basis would collapse. He called the gold standard "that barbarous relic". This deflation reached across the remnants of the British Empire everywhere the Pound Sterling was still used as the primary unit of account. In the UK the standard was again abandoned in 1931. Sweden abandoned the gold standard in 1929, the US in 1933, and other nations were, to one degree or another, forced off the gold standard. As part of this process, many nations, including the US, banned private ownership of large gold stocks. Instead, citizens were required to hold only legal tender in the form of central bank notes. While this move was argued for under national emergency, it was controversial at the time, and there are still those who regard it as an illegal and unconstitutional usurpation of private property. === The Depression and Second World War (1933–1945) === In 1933 the London Conference marked the death of the international gold standard as it had developed to that point in time. While the United Kingdom and the United States desired an eventual return to the Gold Standard, with President Franklin D. Roosevelt saying that a return to international stability "must be based on gold" — neither was willing to do so immediately. France and Italy both sent delegations insisting on an immediate return to a fully convertible international gold standard. A proposal was floated to stabilize exchange rates between France, Britain and the United States based on a system of drawing rights, but this too collapsed. The central point at issue was what value the gold standard should take. Cordell Hull, the United States Secretary of State, was instructed to require that reflation of prices occur before returning to the Gold Standard. There was also deep suspicion that Britain would use favorable trading arrangements in the Commonwealth of Nations to avoid fiscal discipline. Since the collapse of the Gold Standard was attributed, at the time, to the US and the UK trying to maintain an artificially low peg to gold, agreement became impossible. Another fundamental disagreement was the role of tariffs in the collapse of the gold standard, with the liberal government of the United States taking the position that the actions of the previous American Administration had exacerbated the crisis by raising tariff barriers. In the years that followed nations pursued bilateral trading agreements, and by 1935, the economic policies of most Western nations were increasingly dominated by the growing realization that a global conflict was highly likely, or even inevitable. During the 1920s the austerity measures taken to restabilize the Global financial system had cut military expenditures drastically, but with the arming of the Axis powers, war in Asia, and fears of the Soviet Union exporting communist revolution, the priority shifted toward armament, and away from re-establishing a gold standard. The last gasp of the 19th century gold standard came when the attempt to balance the United States Budget in 1937 led to the "Roosevelt Recession". Even such gold advocates as Roosevelt's budget director conceded that until it was possible to balance the budget, a gold standard would be impossible. Nazi Germany, as part of its pogrom against various minorities including homosexuality, the physically or mentally handicapped, Slavic peoples citizens, gypsy, and Jews, used the gold looted from them to finance its war effort. Some Swiss banks were among the international banks who ended up handling gold deposits from this source. The gold was then deposited with the Reichsbank and used as the basis for notes to be issued which were to be accepted as currency. The Reich then instituted wage and price controls, backed by internment in prison camps, to prevent this "Mefo financing" from producing hyper-inflation. During the 1939–1942 period, Britain depleted much of its gold stock in purchases of munitions and weaponry on a "cash and carry" basis from the US and other nations. This depletion of Britain's reserve signalled to Winston Churchill that returning to a pre-war style gold standard was impractical; instead, John Maynard Keynes, who had argued against such a gold standard, became increasingly influential: his proposals, a more wide ranging version of the "stability pact" style gold standard, would find expression in the Bretton Woods Agreement. === Post-war International Gold Standard (1946–1971) === ''This is discussed in the article on Bretton Woods system'' ==Theory== The essential features of the gold standard in theory rest on the idea that inflation is caused by an increase in the Money supply, an idea advocated by David Hume, and that uncertainty over the future purchasing power of money depresses business confidence and leads to reduced trade and capital investment. The central thesis of the gold standard is that removing uncertainty, friction between kinds of currency, and possible limitations in future trading partners will dramatically benefit an economy, by expanding both the market for its own goods, the solidity of its credit, and the markets from which its consumers may purchase goods. In much of gold standard theory, the benefits of enforcing monetary and fiscal discipline on the government are central to the benefits obtained, advocates of the gold standard often believe that governments are almost entirely destructive of economic activity, and that a gold standard, by reducing their ability to intervene in markets, will increase personal liberty and economic vitality. === Differing definitions of "gold standard" === If the monetary authority holds sufficient gold to convert all circulating money, then this is known as a 100% reserve gold standard, or a full gold standard. Some believe there is no other form of gold standard, since on any "partial" gold standard the value of circulating representative paper in a free economy will always reflect the faith that the market has in that note being redeemable for gold. Others, such as some modern advocates of supply-side economics contest that so long as gold is the accepted unit of account then it is a true gold standard. In an internal gold-standard system, gold coins circulate as legal tender or paper money is freely convertible into gold at a fixed price. In an international gold-standard system, which may exist in the absence of any internal gold standard, gold or a currency that is convertible into gold at a fixed price is used as a means of making international payments. Under such a system, when exchange rates rise above or fall below the fixed mint rate by more than the cost of shipping gold from one country to another, large inflows or outflows occur until the rates return to the official level. International gold standards often limit which entities have the right to redeem currency for gold. Under the Bretton Woods system, these were called "SDRs" for Special Drawing Rights. There is also a set of legal criteria which typically must be fulfilled for an international gold standard: #Coins should be convertible to a set amount of gold (that any bills are convertible to gold is implicit). #There must be gold coins circulating in the country (no central administration should control all gold). #There must be no legal difference between coined and non-coined gold. #There must be no legal restrictions that prohibits melting of gold coins. #There must be no legal restriction on export/import of coined/non-coined gold. === Effects of gold-backed currency === The commitment to maintain gold convertibility tightly restrains credit creation. Credit creation by banking entities under a gold standard threatens the convertibility of the notes they have issued, and consequently leads to undesirable gold outflows from that bank. The result of a failure of confidence produces a run on the specie basis, which is generally responded to by the bankers suspending specie payments. Hence, notes circulating in any "partial" gold standard will either be redeemed for their face value of gold (which would be higher than its Intrinsic value) — this constitutes a bank "run"; or the market value of such notes will be viewed as less than a gold coin representing the same amount. In the international gold standard imbalances in international trade were rectified by requiring nations to pay accounts in gold. A country in deficit would have to pay its debts in gold thus depleting gold reserves and would therefore have to reduce its money supply. This would cause prices to deflate, reducing economic activity and, consequently, demand would fall. The resulting fall in demand would reduce imports; thus theoretically the deficit would be rectified when the nation was again importing less than it exported. This led to a constant pressure to close economies in the face of currency drains in what critics called "beggar thy neighbor" policies. Such zero-sum gold standard systems showed periodic imbalances which had to be corrected by rapid falls in output. In practice however this could seriously destabilize the economy of countries which ran a trade deficit, because people tended to make a run on the bank to retrieve their money before gold reserves were exported, thus causing banks to collapse and wiping out savings. Bank runs and failures were a common feature of life during the period when the gold standard was the established economic system. It also created a counter-cyclical effect, as governments taxed trade, they accumulated gold and silver coin, which reduced the monetary base for the private economy. This paradox lead to "money droughts" and inflation, as governments taxed, often to pay for wars, and paid in coin, while the velocity of money decreased in the private economy as individuals hedged against the uncertain political situation by hoarding gold. Each attempt to introduce paper money was met, sooner or later, with either over-printing of money and the resulting collapse of the "fiat" money, including paper francs, continentals printed by the pre-Constitutional US Congress and various "bubbles". Or it would create the demand by the government to be paid only in specie, which devalued the existing paper money. The gold standard, in theory, limits the power of governments to cause price inflation by excessive issue of paper currency, although there is evidence that before World War I monetary authorities did not expand or contract the supply of money when the country incurred a gold outflow. It is also supposed to create certainty in international trade by providing a fixed pattern of exchange rates. The gold standard in fact is deflationary, as the rate of growth of economies generally outpaces the growth in gold reserves. This, after the inflationary silver standards of the 1700s was regarded as a welcome relief, and an inducement to trade. However by the late 19th century, agitation against the gold standard drove political movements in most industrialized nations for some form of silver, or even paper based, currency. Under the classical international gold standard, disturbances in the price level in one country would be wholly or partly offset by an automatic balance-of-payment adjustment mechanism called the price-specie-flow mechanism. (''Specie'' refers to gold coins.) The steps in this mechanism are first: when the price of a good drops, because of oversupply, capital improvement, drop in input costs or competition, buyers will prefer that good over others. Because the stabilization of currencies to gold, buyers within the gold based economies will preferentially buy the lowest priced good, and gold will flow into the most efficient economies. This flow of gold into the more productive economy will then increase the money supply, and produce sufficient inflationary pressure to offset the original drop in prices in the more productive economy, and would reduce the circulating specie in the less productive economies, forcing prices down until equilibrium was restored. Central banks, in order to limit gold outflows, would reinforce this by raising interest rates, so as to bring prices back into international equilibrium more quickly. In theory, as long as nations remained on the gold standard, there would be no sustained period of either high inflation, or uncontrolled deflation. Since, at the time, it was believed that markets internally always clear (See Say's Law), and that deflation would alter the price of capital first, it meant that this would reduce the price of capital, and allow more growth as well as long term price stability. ===Advocates of a renewed gold standard === Thus, the internal gold standard is supported by anti-government economists, including extreme monetarism, Objectivist philosophy, followers of the Austrian School and even many proponents of libertarianism. Much of the support for a gold standard is related to a distrust of central banks and governments, as a gold standard removes the ability of a government to manage the value of money, even though, historically, the establishment of a gold standard was part of establishing a national banking system, and generally a central bank. The international gold standard still has advocates who wish to return to a Bretton Woods system—style system, in order to reduce the volatility of currencies, but the unworkability of Bretton Woods, due to its government-ordained exchange ratio, has allowed the followers of Austrian economists Ludwig von Mises, Friedrich Hayek and Murray Rothbard to foster the idea of a total emancipation of the gold price from a State-decreed rate of exchange and an end to government monopoly on the issuance of gold currency. Many nations back their currencies in part with gold reserves, using these not to redeem notes, but as a store of value to sell in case their currency is attacked or rapidly devalues. Gold advocates claim that this extra step would no longer be necessary since the currency itself would have its own intrinsic store of value. A Gold Standard then is generally promoted by those who regard a stable store of value as the most important element to business confidence. It is generally opposed by the vast majority of governments and economists, because the gold standard has frequently been shown to provide insufficient flexibility in the money supply and in fiscal policy, because the supply of newly mined gold is finite and must be carefully husbanded and accounted for. A single country may also not be able to isolate its economy from depression or inflation in the rest of the world. In addition, the process of adjustment for a country with a payments deficit can be long and painful whenever an increase in unemployment or decline in the rate of economic expansion occurs. One of the foremost opponents of the gold standard was John Maynard Keynes who scorned basing the money supply on "dead metal". Keynesianism argue that the gold standard creates deflation (economics) which intensifies recessions as people are unwilling to spend money as prices fall, thus creating a downward spiral of economic activity. They also argue that the gold standard also removes the ability of governments to fight recessions by increasing the money supply to boost economic growth. Gold standard proponents point to the era of industrialization and globalization of the 19th century as the proof of the viability and supremacy of the gold standard, and point to Britain's rise to being an imperial power, conquering nearly one quarter of the world's population and forming a trading empire which would eventually become the Commonwealth of Nations as imperial provinces gained independence. Gold standard advocates have a strong following among commodity traders and hedge funds with a bearish orientation. The expectation of a global fiscal meltdown, and the return to a hard gold standard has been central to many hedge financial theories. More moderate goldbugs point to gold as a hedge against commodity inflation, and a representation of resource extraction, in their view gold is a play against monetary policy follies of central banks, and a means of hedging against currency fluctuations, since gold can be sold in any currency, on a highly liquid world market, in nearly any country in the world. For this reason they believe that eventually there will be a return to a gold standard, since this is the only "stable" unit of value. That monetary gold would soar to $5,000 an ounce, over 10 times its current value, may well have something to do with some of the advocacy of a renewed gold standard, holders of gold would stand to make an enormous profit. Few economists today advocate a return to the gold standard. Notable exceptions are some proponents of Supply-side economics and some proponents of Austrian Economics. However, many prominent economists, while they do not advocate a return to gold, are sympathetic with hard currency basis, and argue against fiat money. This school of thought includes US central banker Alan Greenspan and macro-economist Robert Barro. The current monetary system relies on the US Dollar as an "anchor currency" which major transactions, such as the price of gold itself, are measured in. Currency instabilities, inconvertibility and credit access restriction are a few reasons why the current system has been criticized, with a host of alternatives suggested, including energy based currencies, market baskets of currencies or commodities. Gold is merely one of these alternatives. The reason these visions are not practically pursued is based on the same reasons that the gold standard fell apart in the first place: a fixed rate of exchange decreed by governments has no organic relationship between the supply and demand of gold and the supply and demand of goods. Thus gold standards have a tendency to fall apart as soon as it becomes advantageous for governments to overlook them. By itself, the gold standard does not prevent nations from switching to a fiat currency when there is a war or other exigency, even though gold gains in value through such circumstances as people use it to preserve value since fiat currency is typically introduced to allow deficit spending, which often leads to either inflation or to rationing. The practical difficulty that gold is not currently distributed according to economic strength is also a factor: Japan, while one of the world's largest economies, has gold reserves far less than would be required to support that economy. Finally the quantity of gold available for reserves, even if all of it were confiscated and used as the unit of account, would put the value of gold upwards of 5000 dollars an ounce on a purchasing parity basis. If the current holders of gold imagine that this is the price that they will be paid for giving up their gold, they are quite likely to be disappointed. For these practical reasons — inefficiency, misallocation, instability, and insufficiency of supply — the gold standard is likely to be more honoured in literature than practiced in fact. == Gold as a reserve today == Sveriges_Riksbank,_still_form_an_important_currency_reserve_and_store_of_private_wealth.">image:Gold ingots.jpg|thumb|200px|right|Gold ingots like these, from the Sveriges Riksbank, still form an important currency reserve and store of private wealth. During the 1990s Russia liquidated much of the former USSR's gold reserves, while several other nations accumulated gold in preparation for the Economic and Monetary Union. The Swiss Franc left a full gold-convertible backing. However, official gold reserves are held in significant quantity by many nations as a means of defending their currency, and hedging against the US Dollar, which forms the bulk of liquid currency reserves. Weakness in the US Dollar tends to be offset by strengthening of gold prices. Gold remains a principal financial asset of almost all central banks alongside foreign currencies and government bonds. It is also held by central banks as a way of hedging against loans to their own governments as an "internal reserve". In addition to other precious metals, it has several competitors as store of value: the US dollar itself and real estate. As with all stores of value, the basic confidence in property rights determines the selection of which one is chosen, as all of these have been confiscated or heavily taxed by governments. In the view of gold investors, none of these has the stability that gold had, thus there are occasionally calls to restore the gold standard. Occasionally politicians emerge who call for a restoration of the gold standard, particularly from the libertarianism right and the anti-government left. Mainstream conservative economists such as Barro and Greenspan have admitted a preference for some tangibly backed monetary standard, and have stated that a gold standard is among the possible range of choices. Some privately issued modern notes (such as e-gold) are backed by gold bullion, and gold. Both coins and bullion are widely traded in deeply liquid markets, and therefore still serve as a private store of wealth. In effect, the holder of such currencies is long gold, short their own currency and writing checks on their account. In 1999, to protect the value of gold as a reserve, European Central Bankers signed the "Washington Agreement", which stated they would not allow gold leasing for speculative purposes, nor would they "enter the market as sellers" except for sales that had already been agreed upon. A selling band was set. This was intended to prevent further deterioration in the price of gold. (See Washington Consensus) In 2001 Malaysian Prime Minister Mahathir bin Mohamad proposed a new currency that would be used initially for international trade between Muslim nations. The currency he proposed was called the gold dinar and it was defined as 4.25 grams of 24 carat (100%) gold. Mahathir Mohamad promoted the concept on the basis of its economic merits as a stable unit of account and also as a political symbol to create greater unity between Islamic nations. ==See also== * Digital gold currencies * Goldbug * International Monetary Fund * World Bank == References == * The Gold Standard in Theory and History, Barry Eichengreen (Editor), Marc Flandreau, 1997, ISBN 0415150612 * The Gold Standard and Related Regimes : Collected Essays (Studies in Macroeconomic History), Michael D. Bordo (Editor), Forrest Capie (Editor), Angela Redish (Editor), 1999, ISBN 0521550068 * A Retrospective on the Classical Gold Standard, 1821–1931 (National Bureau of Economic Research Conference Report), Michael D. Bordo (Editor), Anna J. Schwartz (Editor), 1984, ISBN 0226065901 * Between the Dollar-Sterling Gold Points: Exchange Rates, Parity, and Market Behavior. Lawrence H. Officer, Cambridge University Press, 1996 * Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 (NBER Series on Long-Term Factors in Economic Development), Barry Eichengreen, 1996, ISBN 0195101138 * Money and Politics: European Monetary Unification and the International Gold Standard (1865–1873) Luca Einaudi 2001 * Keynes, the Liquidity Trap and the Gold Standard: A Possible Application of the Rational Expectations Hypothesis, Robert Marks 1995 * Ideology and the Evolution of Vital Economic Institutions: Guilds, The Gold Standard, and Modern International Cooperation Earl A. Thompson, Charles R. Hickson, 2000 * Gold Standard and Employment Policies between the Wars, Sidney Pollard Ed. 1970 * Stability of International Exchange: Report on the Introduction of the Gold-Exchange Standard into China and Other Silver-Using Countries, Commission on International Exchange, 2001 * [http://www.predecimal.com/p1celtic.htm] Ken Elks' series on British Coinage * Banking in Modern Japan Research Division of the Fuji Bank, 1967 * Bordo, Michael D. "Bimetallism". In The New Palgrave Encyclopedia of Money and Finance edited by Peter K. Newman, Murray Milgate and John Eatwell. New York: Stockton Press, 1992. * Gold Standard and the International Monetary System, 1900–1939, Ian M. Drummond 1983 * The Gold Standard in Theory and Practice, RG Hawtrey, Longmans and Green * Glitter of Gold: France, Bimetallism, and the Emergence of the International Gold Standard, 1848–1873 Marc Flandreau 2003 * Cyclopædia of Political Science, Political Economy, and the Political History of the United States by the Best American and European Writers, John Lalor, 1881 * The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison Ben Bernanke, Harold James 1990 * The World Currency Crisis Murray Rothbard * The Downfall of the Gold Standard Gustav Cassel 1966 * Currency Convertibility: The Gold Standard and Beyond Jorge Braga de Macedo (Editor) 1996 * Deceit of the Gold Standard and of Gold Monetization, William H. Russell 1982 * Gold, Prices and Wages under the Greenback Standard Wesley Clair Mitchell * Gold Standard Illusion: France, the Bank of France, and the International Gold Standard, 1914–1939 Kenneth Moure * Modern Perspectives on the Gold Standard Tamim Bayoumi (Editor), Mark P. Taylor (Editor), 1997 * Keynes, John M. 1925; ''The Economic Consequences of Mr. Churchill'' (Criticism of returning to the gold standard at the pre-war level – [http://www.gold.org/value/reserve_asset/history/monetary_history/vol2/1925jul.html]) * A Treatise on Money, John Maynard Keynes 1930 * Credibility of the Interwar Gold Standard, Uncertainty, and the Great Depression J. Peter Ferderer 1999 * Monetary Standards in the Periphery: Paper,Silver and Gold,1854–1933, Pablo Martin Acena (Editor), Jaime Reis (Editor), 2000 * [http://www.bankofengland.co.uk/natcentral.htm History of the Bank of England] The Bank of England updated 2004 * Anatomy of an International Monetary Regime: The Classical Gold Standard, 1880–1914 Guilio M Gallarotti * Canada and the Gold Standard: Balance of Payments Adjustments under Fixed Exchange Rates 1871–1913 Trevor Dick, John E. Floyd 1992 * == External links == * [http://www.gata.org Gold Anti-Trust Action Committee website] * [http://www.the-privateer.com/1933-gold-confiscation.html The Roosevelt Gold Confiscation Order Of April 3 1933] * [http://www.fdic.gov/regulations/laws/rules/5000-200.html FDIC statement of policy regarding Public Law 93-373] * [http://www.galmarley.com/framesets/fs_header_page_for_faqs.htm Gold information for researchers] ===Articles=== * [http://www.321gold.com/fed/greenspan/1966.html "Gold and Economic Freedom"] by Alan Greenspan * [http://www.pkarchive.org/cranks/goldbug.html The Gold Bug Variations] by Paul Krugman describes the gold standard as an "economic myth". * [http://wanniski.com/searchbase/gp1.htm ''A Gold Polaris''] by Jude Wanniski (Advocates for a return to a gold standard) * [http://home.att.net/~Resurgence/L-gold.htm Fact: The gold standard causes deflation and depressions] — A Keynesian economics view of the gold standard. * [http://www.nber.org/papers/W6060 NBER on the contribution of the Gold Standard to the Great Depression] * [http://iraqwar.mirror-world.ru/article/47820 Churchill Gold and the Empire - History of Churchill's decision to return the Sterling Pound back to the Gold Standard] Money Gold International trade
Gold standard
I added the copyedit tag because some of the text is duplicated and some of the grammar is questionable. I haven't the time to fix it at the moment. -------- Selected on Template:March 18 selected anniversaries (may be in HTML comment) -------- I presume that "reasons why" in the article as it was were those given by the Nixon Administration - the opposing view is attributable to nearly everyone who commented on the Euro-dollar. Pick your source. I'll stand by the fact that there was no way there was enough gold in Fort Knox to redeem the notes in 1975, and no way to test for it, since US citizens couldn't own gold and Europeans couldn't redeem notes.24 ------ Well duh........ U.S. currency was representative money and as such no one ever pretended that the United States had the gold reserves to redeem all the dollars in circulation if everyone decided to redeem their dollars at the same time. :ok, this is our "representative" versus "commodity" argument again. I think it arises because really there is some degree of commodity, credit, and fiat involved in *every* kind of money. In other words we should not write about "commodity money" but rather "commodity settling", and likewise "credit clearing", and "fiat backing" - any of which may be involved in a given currency. The trouble was that in 1971 to 1974, everyone *did* decide to redeem their dollars at the same time because the dollar was seriously undervalued with respect to its nominal value in gold (and this was the result of Johnson administration deficit funding for Vietnam and the Great Society). :more than that - there was the counterfeiting and Eurodollar problems there in the background too - but all grist for the mill. Those were causes of a balance of trade problem. As such the Bretton Woods system broke down. :yup. Except the also-broken Bank for International Settlements was never fixed, nor the IMF... 24, the fact that you don't seem to know what the gold standard (and for that matter what commodity money is) makes it very difficult for me to take anything you have to say regarding economics seriously. :and, the fact that you don't use "is" the way I do makes it hard for me to believe you understand how money itself works. I find it very hard to believe that I would understand the ultra-complex arguments around flags, brands and labels, and simultaneously not understand the simple silly ones around gold. but, it's always possible, certainly the article as it is has benefitted from your rewrite, and from my bringing up the issue of non-convertibility and insolvency. 24 ------ Currently the first paragraph reads as follows: :The gold standard was a monetary system in which paper money was convertible on demand into gold. Under such a system money represents gold: coins are made of the corresponding amount of gold, and/or coins and notes represent an amount of gold held in a vault somewhere. Banknotes were issued fractionally backed by gold (i.e. gold reserves were a fixed proportion of the value of the notes in circulation). Rates of exchange between countries were fixed by their currency values in gold. Most financially important countries were on the gold standard from 1900 until its suspension during World War I because of the problems of transporting gold. It was reintroduced in 1925 but finally abandoned in 1931. Several issues with this: #With regard to ''"Banknotes were issued fractionally backed by gold"'' etc. This is inappropriate. It is not part of the "Gold Standard" but part of the Fractional reserve banking system and therefore does not belong on this page. #Regarding ''"Rates of exchange between countries were fixed by their currency values in gold"'' This issue is handled further down the page. The repeat, in this sentence should be removed since it does not need double treatment when it covered properly further down. #With regard to ''"gold standard from 1900 until its suspension during World War I because of the problems of transporting gold"'' This is simply not true. Gold is transported even now, and often gold does not need to be transported, but simply becomes reallocated in the COMEX vaults et. al. More to the point, it is a silly thing to say on the face of it. If transporting live cattle, copper, aluminium, rice, corn, and wheat by ship is economically viable, then why not gold? If User:172 has reason for this comment, then I would be interested in reading about it. #With regard to ''"It was reintroduced in 1925 but finally abandoned in 1931."'' This is untrue on the face of it. There is no mention where "it" was reintroduced in 1925. In fact what was ''"introduced"'' was the Gold Exchange Standard in Britain and parts of Europe, not the gold standard per se, and I believe that was in 1926, not 1925. Here is my suggested replacement for the currently rather muddled and inaccurate first paragraph: :The gold standard was a monetary system in which paper money was convertible on demand into gold. Under such a system money represents gold: coins are made of the corresponding amount of gold, and/or coins and notes represent an amount of gold held in a vault somewhere. :When banknotes were issued fractionally backed by gold (i.e. gold reserves were a fixed proportion of the value of the notes in circulation) this was the Fractional reserve banking system, and should not be mistaken for a true Gold Standard. I suggest User:172 cease attempting to revert this page to eliminate these changes. -- User:Octothorn 20:09, 17 Aug 2003 (UTC) ----- Quit trying to get away with pushing an agenda. So far you've been able to do it because the articles dealing with economics have always gotten a low degree of interest around here. Articulate the distinctions between the prewar "classical gold standard" and the postwar "gold exchange standard" in this article, if you want. Please review the NPOV guidelines so that you'd realize that it is inappropriate to try to sneak in your advocacy piece and veiled theses. The Gold Exchange Standard was a gold standard, just not a restoration of the classical prewar system per se. I added a good deal to the article since, and it should clarify what set the classical gold standard and the Gold Exchange Standard apart. User:172 07:29, 18 Aug 2003 (UTC) ---- Volunteer to make it less UK-US centered? --User:Ann O'nyme 21:15, 31 Aug 2003 (UTC) :Sure, go for it. I would've done it much earlier had I had time. 172's been fairly inactive for the past few weeks. Next week, however, I'll make my presence known once again. User:172 22:26, 31 Aug 2003 (UTC) ---- The History section has a rather large chronological jump from the Sumerians directly to the year 1824. Volunteer for some history in between, particularly with regards to the large Spanish movements of gold and silver from the New World to the Old and what effect that had? User:Tempshill 06:25, 23 Oct 2003 (UTC) ----- Move here for discussion :Nixon's move to cease allowing foreign Governments to redeem dollars for precious metal was the final act in a 150-year-long 'transfer' of the citizen's gold and silver to the Federal Government's vault. This allowed the U.S. Government to have much more freedom in determining the rate of printing and volume in circulation of its Fiat money currency. ---- Need source ::Tantalum is also suggested as an alternative money supply standard, since even in an economy based on molecular engineering it would remain extremely difficult to forge - and remain quite easy to hide. User:Roadrunner 00:48, 30 Apr 2004 (UTC) ''A proposal was floated to stabilize exchange rates between France, Great Britain and the United Kingdom based on a system of drawing rights, but this too collapsed.'' I have changed Kingdom to read States as I assume that was what was originally intended. --User:Spencer BOOTH 07:17, 15 Jul 2004 (UTC) ---- The picture at the top is far too large and doesn't really add much to the article. Could someone reduce it to a smaller png and put it in a more appropriate place? User:Lisiate 00:09, 28 Jul 2004 (UTC) ------ "a questionable assumption in light of the spending binge of George W. Bush" removed from the Washington concensus secion. It just seemed too POV. I am, however, not sure how to word it better. -User:Vina 20:30, 3 Aug 2004 (UTC) cited source of the contention - namely the International Monetary Fund. That Bush has run up massive deficits, that those deficits are structural and that they are destabilizing the international currency system are matters beyond dispute, and are not disputed by anyone not employed by the RNC or its subsidiaries. So sorry, facts are stubborn things here. User:Stirling Newberry 23:23, 3 Aug 2004 (UTC) :ahem, try debt vs. GDP (or debt as % of GDP). Plenty of sources. The US debt currently is lower than it is in the early 1990's. The rate of increase is high, that is not disputed, but neither is it higher than the rate of increase in the late 1980's and early 1990's. So sorry, facts are stubborn things here. -User:Vina 23:31, 3 Aug 2004 (UTC) :Did some more research on the IMF site. Included a summary in that section. Note that they are concerned about trends exhibited since 1999, and that they are also concerned about household spending. Hopefully this is more acceptable to you? -User:Vina 00:25, 4 Aug 2004 (UTC) I will not be editing this page any more as I do not believe in getting to edit wars. In closing, I will mentioned that I still think what you wish to add is POV, not extremely, but still POV. -User:Vina 05:11, 4 Aug 2004 (UTC) I'm reporting what the IMF has said about the need for a stable anchor currency and current US fiscal policy. "Tax increases will be needed to maintain the stability of the US dollar". It's also what comes straight out of the Fleming-Mundell model, namely that running a consistent budget deficit will continue to negatively impact the balance of trade, and therefore devalue the dollar. Find a model that says otherwise, and report on what it says. User:Stirling Newberry 08:31, 4 Aug 2004 (UTC) :Sigh, I never objected to the model, merely the personal attack. In all my research, I've only seen the comment on Jan 7, 04 about Bush, and that was 1 paper published by 1 analyst. In no other statement does the IMF come across so harshly, not even when it criticised the tax cuts 2 years ago did it comment that harshly (incidentally, the IMF now acknowledges the role the tax cuts did in bringing the world out of recession.) The papers that you refer to, those released July 30th, and accessible from the IMF front page, do not mention Bush by name (At least, what I (did not) find via an Acrobat Reader search.) Statements like the foreign debt being an "unprecedented" 40% of GDP is without base (the unprecedented part, not the 40% part) as Japan has one above 100%, and many euro nations are hovering around 70%. I have not seen the IMF follow up on the Collyns paper all that much. They have valid concerns, and writing about them is perfectly fine with me. it's the personal attack part that I feel is POV. -User:Vina 16:39, 4 Aug 2004 (UTC) Sigh again - someone else proposed the tax packages? They were submitted to congress by Bush, who in fact wanted larger revenue reductions in 2003 than were finally passed. Again, "attacks" and what people wanted to be said are all well and good, but the documentable facts at hand are: 1. The tax policy is driven by the current US executive 2. Every economic model I have seen - including the ones from OMB and CBO - indicate structural deficits and continued devaluation of the US dollar. If you feel someone else is responsible for the tax reductions, I am sure we'd all be fascinated to know who that is. If you have a model which indicates that the IMF is wrong - and they've been wrong before - then by all means present it. I simply haven't found one. User:Stirling Newberry 00:44, 5 Aug 2004 (UTC) Why were the sections "Post-War International Gold Standard (1946-1971)" and "The Washington Consensus" removed? They were acting as summaries of main articles. User:172 01:01, 5 Aug 2004 (UTC) Space considerations, and because as the author of the history section, it was better and more consistent to refer to the more extensive Bretton Woods article, so that issues could be resolved once, rather than multiple times. I've removed the Washington Consensus section because it is clear there are issues that need to be resolved which are not germane to the question of a gold standard per se. User:Stirling Newberry 01:15, 5 Aug 2004 (UTC) :And as the author of the more extensive Bretton Woods article, I think that there ought to be condensed summaries of that article available in entries on broader, encompassing topics. Some readers like detail while other types of readers want the most important facts in a condensed format. Space considerations are not a major concern; there are plenty of articles on important, broad, and complex subjects that take up well over 32K. User:172 01:29, 5 Aug 2004 (UTC) :Just to add to the above, I'm not saying that a summary of the Washington Consensus article belongs here. However, at least a few concluding remarks on the Washington Consensus that are germane to the question of the gold standard will be helpful. User:172 01:40, 5 Aug 2004 (UTC) ----- With regard to the following paragraph in the text: :"After the collapse of the empire in the West, and the decline of the mines in Europe which were largely played out, the Byzantine empire continued to mint successor coins to the solidus, called the nomisma or bezant. They were forced to mix more and more base metals with gold, until by the turn of the millennium the coins in circulation were only 25% gold by weight, a tremendous drop from the 95% pure old Roman coins. Increasingly trade was conducted in a coin struck in the Arabic world using gold from Africa: the dinar." In the first sentence, whiile the Bezant was the successor coin to the Solidus, they became two names for the same coin [1]. The Greeks of the Byzantine Empire now called the old circulating Solidus by the name of the new Byzantine issues of the old coin, the Bezant [2]. The second sentence beginnning with the words "They were forced..." is inappropriate. "They" - the Byzantine Empire - were not forced to degrade the purity of the coin. If they were, someone ought to provide the text with some indication of what it was that "forced" them, otherwise the use of the word "forced" should be removed. The reason for the degradation of the coin is simple, and nobody was forced do do so - "they" just wanted to be able to mint more coins for themselves using the same amount of gold. This is the same reason any government has ever had for degrading the purity of gold coins, a form of embezzlement - they get something for nothing. More importantly, however, that sentence is inaccurate. The Bezant was not degraded as quickly as indicated. It circulated from the early fourth century, continuing until Emperor Michael IV (1034 - 1041) began to degrade it's purity. Prior to that tiime the Bezant circulated at it's full weight and purity. The Bezant was therefore stable for a period of about 700 years [2]. The final sentence is also inaccurate. The Dinar was modelled on the Bezant and the earlier Solidus [1][2]. Essentially it was the same coin, just minted by the Arab Empire. Consequently both the Dinar and Bezant circulated alongside one another. The text should also draw attention to the fact that the Dinar circulated for about 450 years unchanged, from the late 7th century to the mid-12th century, during which time the Saracen Arab civilisation flourished until it callapsed in religious turmoil. The Solidus the Bezant and then the Dinar were all gold coins of the same gold content (4.4 grams at 22 carats) which at times circulated alongside one another. In this way a gold standard based on a single form of gold coin was maintained for a thousand years, surviving three empires. References: :[1]"Trade Coins" http://www.cyberussr.com/hcunn/gold-co.html, by Hugo S. Cunningham -- Valid as at 2004-09-06T11:00:20+10:00 :[2]"Gold Wars", by Ferdinand Lips, 2001, Pages 3-6. :[3]"Roman Imperial Coinage" http://www.roman-britain.org/coinage.htm -- Valid as at 2004-09-06T11:00:20+10:00 User:Octothorn 01:06, 6 Sep 2004 (UTC) Even your own references contradict you - the solidus was debased repeatedly over time, and was, in itself, an attempt to debase the aureus. User:Stirling Newberry 20:11, 27 Dec 2004 (UTC) : Um... Where? And, how in the world would one coin be used to debase another? Coins don't debase coins, people debase coins. The Aureus was already very much reduced in size by the time the soludus was produced. The solidus replaced the aureus. Perhaps you are confusing "replaced" with "debased". User:Octothorn 07:33, 6 Jan 2005 (UTC) ---- The following paragraph near the beginnning of the text appears to be silly, and wording should be reconsidered: :"Typically under a gold standard, the physical transport of gold becomes cumbersome for popular use, and so promissory notes? (which may be either issued privately or by government) to pay in gold at a later date, circulate. These note are convertible into physical gold on demand. Also known as demand notes?, (see paper money)." The idea that "physical transport of gold becomes cumbersome for popular use" is amusing. An 8 gram gold coin (nominal value of $5) carries US$100 worth of gold. Notes larger than $100 are seldom used. While a $100 note may not be quite as "cumbersome" as such a coin, the coin is certainly more durable. One may also suggest that if a single 8 gram coin representing $100 is "cumbersome for popular use", then the quarter, currently in "popular use", must then be over 400 times more cumbersome than a gold coin. :Originally large volumes of gold were required to make large purchases. While carrying 100 dollars worth of gold is not a problem, the volume of gold required for the annual wheat import of Rome would run a great deal more. The cost in silver of a chest of opium weighed thirty times as much as the chest itself. And in the present, larger bills are less common because of checks, credit cards and other instruments. That is to say, because even paper money is too cumbersome for popular use. User:Stirling Newberry 20:11, 27 Dec 2004 (UTC) : Surely you haven't forgotten that checks are claims on bank deposits, not money. Also, credit is credit, not money. Neither can circulate as currency. The text suggests that gold is more cumbersome than cash, but that is not true. Notes, originally issued as claims on a quantity of gold, are now so devalued that they are about as cumbersome as gold. Suggestions that gold is more cumbersome than fed reserve notes are not relevent or constructive to the issue, and the comment as it stands lacks NPOV ansd should be removed. User:Octothorn 07:58, 6 Jan 2005 (UTC) The subject of notes should still be raised, since the page carries an image of one. What follows is a possible replacement: :The use of gold coins in large transactions is time consuming and prone to error. Centuries ago the market found a solution to this problem. Goldsmiths would issue notes of claim on gold coins deposited with them. Those coins were not spent, but were held in reserve to cover the notes that were issued. Each transaction involving a large amount of gold was easier with a note. Many consecutive transactions using one note could proceed smoothly. Coins would not need to be counted or transported until the note was redeemed, and each note could be exchanged for goods over and over. :This has also been true in more recent times, as with the 1922 U.S. Gold Certificate shown on this page. This $100 note was a claim on about five ounces of gold coins, or $2000 worth of gold in the year 2004. Notes similar to that pictured were issued to the depositor as a claim on gold coins. The benefit of using something like the replacement above is that it outlines the need for notes in large transactions and the function of gold certificates. It also links the text to the image, giving the reader some perspective on what the note is worth. User:Octothorn 04:29, 6 Sep 2004 (UTC) graf was replaced with a graf on the general advantages of paper money within the context of a specie based monetary system User:Stirling Newberry 20:11, 27 Dec 2004 (UTC) ---- == Needs more pictures == For a featured article, especially now highlighted on the main page, this article needs more pictures. I added one of gold ingots held by the Bank of Sweden, but I'm sure others could be found. Curiously, I could not find one image of a gold coin on Wikipedia. Perhaps you may have better luck than I, or find other relevant images.--User:Pharos 20:22, 21 Jan 2005 (UTC) ---- Britain was almost immediately forced to gradually end its gold standard Immediate and gradual at the same time? User:Ubermonkey 21:16, 21 Jan 2005 (UTC) == too long.. == Interesting, but too long and often redundant. The proponats' and oponents' viewpoints are presented over and over again, this needs to be made more compact.
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GA | GB | GC | GD | GE | GF | GH | GI | GJ | GK | GL | GM | GN | GO | GP | GR | GS | GT | GU | GW | GX | GY | GZ |Words begining with Gold_Standard:
Gold_Standard
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