Gold Standard

   A standard defining a national currency in terms of a fixed weight of gold, and allowing a free exchange and trade of gold. Until the nineteenth century, most of the countries maintained a bimetallic monetary system, in which national monetary units were valued against a certain weight of either gold or silver. The widespread adoption of the gold standard during the second half of the nineteenth century was largely due to the Industrial Revolution that brought a tremendous increase in the production of goods and widened the basis of world trade. During its existence, the classical gold standard is widely seen to have contributed to equilibrium of balances of payments worldwide. The same institutions that lent support to a period of remarkable globalization and economic modernization later contributed to interwar instability and the depth and length of the Great Depression of the 1930s. By the late 1930s, the gold standard as a species of monetary policy was mostly extinct.

   The countries that accepted the gold standard had three principal objectives: to facilitate the settlement of international commercial and financial transactions, to establish stability in foreign exchange rates, and to maintain domestic monetary stability. Monetary authorities in different countries believed these aims could best be accomplished by having a single standard of universal validity and relative stability. In the early part of the nineteenth century, virtually no country had a gold-based currency. The gold standard was introduced by Great Britain in 1821 and adopted by Australia and Canada in 1852 and 1853, respectively. Between 1870 and 1910, however, most nations came to adopt it. The far-reaching changes of 1871 led Germany, Scandinavia, Holland, Belgium, Switzerland, France, Finland, and the United States to adopt gold standards by 1879. In the 1880s, Argentina, Chile, Greece, and Italy chose gold-based regimes, but these experiments did not last. Many of the countries soon reverted to fiat currency regimes where it became impossible to trade a fixed number of domestic notes for gold specie at the legally mandated quantity. By the first decade of the twentieth century, most of these nations nonetheless adopted the gold standard again. In the 20 years after 1890, Asian nations also linked up to the gold standard. With some exceptions, the prevalence of the gold standard lasted until the economic crisis of 1929 and the ensuing depression.

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   FURTHER READING:

    Eichengreen, Barry J. Golden Fetters: The Gold Standard and the Great Depression, 1919-1939. Oxford: Oxford University Press, 1992;

    Flandreau, Marc. “ The French Crime of 1873: An Essay on the Emergence of the International Gold Standard. ” Journal of Economic History 56 , 4 (1996): 862–897;

    Gallarotti, Giulio, M. The Anatomy of an International Monetary Regime: The Classical Gold Standard, 1880-1914. Oxford: Oxford University Press, 1995.

   JITENDRA UTTAM