The Advantages and Disadvantages of the Gold Standard

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The Advantages and Disadvantages of the Gold Standard
Angelina Di Mauro
BUS 450
Wendy Achilles
July 14, 2012

The Advantages and Disadvantages of the Gold Standard The Gold Standard is a historic monetary system in which the standard unit of account is a fixed weight of gold, and though the main benefit is that it insures a relatively low level of inflation, economies on the gold standard are less able to avoid or offset either monetary or real shocks. Gold has been known as the currency of choice throughout history, and at one point in time the country that had the most gold was known to be the wealthiest. By the eighteen hundreds many countries began to seek new ways to produce wealth through standardized transactions. As a result the gold standard was adopted as means to exchange currency in a new world market, and means to regulate the production of paper money in world economies. The following will highlight both the advantages and disadvantages of the historic gold standard monetary system. The paper will come to a conclusion with an emphasis on why many countries had to abandon this momentous means of exchange. According to one source, “the gold standard was a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money, i.e. bank deposits and notes, were freely converted into gold at a fixed price” (Bordo, pg 1 ¶1). In a new world market the gold standard was a way to determine the value of one country’s currency in terms of other countries’ and their currencies. Holding paper currency in a perspective country meant one could present it to the government and receive an agreed upon value from that country’s gold reserves. The benefit of utilizing the gold standard in a new world market was governments could only print as much paper money…...

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