Although it no longer exists, the gold standard was the most famous monetary system history. It involved all the countries, which promised to set their currencies as per the rate of gold.

The era of the gold standard merely started from England, in 1790s due to a shortage of silver, which compelled them to use Gold coins instead of silver. Later on, the Bank Charter Act in'44, made gold as the legal standard of selling, and buying currencies.

However, in'73, the Fourth Coinage Act was passed, through which, the gold standard was embraced. Following these two major nations, many other countries also adopted the gold standard such as Germany, France, and Italy. The period from'80 to'14 is known in history as the classic gold standard. At that time, most nations of the world had moved towards the gold standard, and there was a lot of economic growth throughout the world.

The gold standard was used to regulate the demand and supply of the currency of a country in the long term. It helped in keeping the money supply stable. It was also used for determining the exchange rate of currency between two countries.

This led to the use of fixed exchange rates throughout the world, and meant that the value of currencies were always seeing upheavals and down turns remaining in connection, which led to a reduction in economic uncertainty. There were other benefits of the gold standard as well. Inflation was controlled because the governments could not simply issue currency, and float it in the market to create inflationary pressures.

There were also certain disadvantages, which led to the abolishment of the gold standard. The fixed exchange rate system meant that monetary shocks in one country were transmitted to other countries as well. This led to changes in the economy, money supply, and price levels in other countries. While there was long-term stability, prices were sometimes highly unstable in the short run.

Moreover, for the gold standard to work perfectly, the central banks of participating countries had to follow a certain set of uniform rules, which proved to be quite difficult. Many countries did not follow the rules, and therefore, did not change their discount rates affectively. Unemployment was also relatively high in the period of the gold standard. Finally, the cost of producing gold was a burden on many economies.

Several supporters of gold standard still exist, even though the system is no longer there. These supporters still believe that the gold standard brings in stability in the prices, keeps the control of monetary policy away from the central banks, and manages a fixed exchange rate. Perhaps the gold standard cannot be revived again any time soon.

Jack Wagon is a gold investment consultant. Learn how to buy gold in the times of recession. For more information visit his recommended website at http://www.goldmadesimple.com/.

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