Gold standard

A gold standard is a monetary system where the basic unit of money is defined by a fixed amount of gold.^[1]

Two 20 kr gold coins from the Scandinavian Monetary Union, which used the gold standard. The coin on the left is Swedish and the one on the right is Danish.

Gold certificates used as paper money in the United States between 1882 and 1933. These could be exchanged for gold coins.

The gold standard was the main system for the world economy from the 1870s until the early 1920s, and then again from the late 1920s to 1932, and from 1944 until 1971. In 1971, the United States ended the practice of converting U.S. dollars into gold, which ended the Bretton Woods system.^[1]

Many countries no longer use it, but some still keep large gold reserves.^[1]

Implementation

A country on the gold standard guarantees that its paper money can be exchanged for a fixed amount of gold.^[1]

One version is the bullion standard, where gold coins may not circulate widely, but central banks exchange currency for gold bars at a fixed price.^[1]

The amount of money a country can issue is limited by its gold reserves, linking money supply to gold.^[1]

History before 1873

Silver and bimetallic standards

Many societies used silver or a mix of silver and gold, not gold alone.^[2] Gold coins were used for big transactions, while silver coins were for everyday trade.^[2]

Gold standard origin in Britain

In 1717, Britain moved toward a gold standard because the silver-to-gold ratio undervalued silver. Silver coins disappeared from circulation.^[2] Over decades, gold and banknotes became the main money, replacing silver.^[2]

The international classical gold standard, 1873–1914

Rollout in Europe and the United States

By the 1870s, many major countries adopted the gold standard, helped by new gold from gold rushes.^[1] Currencies could be converted into gold at a fixed price, making exchange rates between countries stable.^[1]

Role of central banks

Central banks kept currency convertible to gold and maintained stable exchange rates.^[1] They also adjusted interest rates or controlled money circulation to manage international payments.^[1]

Abandonment of the gold standard

Impact of World War I

The gold standard ended in 1914 because countries needed to print more money for the war without enough gold.^[2]

Interwar period and the Great Depression

After the war, countries tried to return to gold, using the gold-exchange standard.^[2] During the Great Depression, the gold system failed and most countries abandoned it by 1937.^[2]

After World War II — Bretton Woods and final end

After WWII, the Bretton Woods system pegged currencies to the U.S. dollar, which could be converted to gold.^[2] In 1971, the U.S. ended the dollar-to-gold convertibility, ending the global gold standard.^[2]

Advantages and disadvantages

Advantages:

• Money supply is limited by gold, reducing inflation.^[2]
• Fixed exchange rates make international trade predictable.^[2]

Disadvantages:

• Gold supply may not grow with the economy, limiting money availability.^[2]
• Governments cannot easily respond to recessions or increase money supply.^[2]
• Fixed rates can worsen economic crises, like the Great Depression.^[2]

Modern view and critique

Most economists say a gold standard would not improve price stability or employment. A 2012 survey of 39 economists found 92% disagreed that it would help.^[2] Economic historians think the gold standard did not reduce business-cycle swings.^[2] Supporters, such as Austrian School economists, libertarians, and supply-side economists, value its role as a "nominal anchor" and stable money.^[2]