gold standard

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gold standard:

see bimetallismbimetallism
, in economic history, monetary system in which two commodities, usually gold and silver, were used as a standard and coined without limit at a ratio fixed by legislation that also designated both of them as legally acceptable for all payments.
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; international monetary systeminternational monetary system,
rules and procedures by which different national currencies are exchanged for each other in world trade. Such a system is necessary to define a common standard of value for the world's currencies.
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; moneymoney,
term that refers to two concepts: the abstract unit of account in terms of which the value of goods, services, and obligations can be compared; and anything that is widely established as a means of payment.
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Gold Standard

 

a monometallic monetary system that existed in many countries during the stage of the development of capitalism under which only gold was a universal equivalent and the direct basis of monetary circulation.

The perfect classic form of the gold standard was the gold monetary standard, according to which the monetary unit of a country had a definite, legally established, unchanged gold content (gold parity) and the “price” of gold in token money corresponded to this parity. Gold coins were in circulation and had the unlimited privilege of a legal tender. The central banks of issue had the obligation to redeem bank notes and other token money (paper money and coins of inferior metallic content) for gold at face value. For a small fee or no fee, unrestricted coinage was allowed from gold belonging to private persons, and gold coins could be remelted into gold bullion. Unrestricted export and import of gold of any kind was permitted, and no foreign exchange restrictions were in force.

The gold standard was introduced for the first time in Great Britain (legally at the end of the 18th century and in actuality in 1821). In France, Germany, Russia, Italy, Japan, the USA, and other capitalist countries the introduction of the gold standard was completed in the last quarter of the 19th century. Monetary systems of individual countries turned into a single relatively stable world currency system. This to a great extent contributed to the development of the world capitalist economy, the growth of industrial production, the promotion of domestic commodity turnover and international trade, and the expansion and consolidation of the credit system.

With the beginning of the general crisis of capitalism when World War I broke out, the gold monetary standard went bankrupt. Instead, paper money was put into circulation. After World War I, an attempt was made to reintroduce the gold standard from 1924 to 1928, not in its earlier form but in the form of a gold bullion and gold currency standard. The circulation of gold coins could not be reinstated for lack of gold reserves and the uneven distribution of reserves among countries. Large amounts in bank notes were exchanged for gold ingots of 12–14 kg (in Great Britain and France) or for foreign currencies which in their turn were exchanged for gold bullion (in Germany, Belgium, and other countries). Gold was completely forced out of domestic circulation in all countries except the USA, where it was in circulation until 1933. The redemption of bank notes for gold bullion was effected as a rule only in cases of liquidation of the deficit of an unfavorable balance of payments by means of gold export. These modified forms of the gold standard, however, were also short-lived. Complete bankruptcy resulted from the world economic crisis of 1929–33, when in all capitalist countries, including the USA, paper money circulation was instituted with such inherent consequences as inflation, an increase in commodity prices, and sharp fluctuations of foreign exchange rates. The gold standard was abolished in Great Britain and Japan in 1931, in the USA in 1933, in Belgium and Italy in 1935, and in France, Switzerland, and the Netherlands in 1936.

The international foreign exchange system that arose after World War II is sometimes also called the gold currency standard because, according to the requirements of this system, which was formulated at the Bretton Woods international monetary conference in 1944, all countries had to have reserves in gold and foreign exchange (basically in US dollars) to cover a deficit in their balance of payments. However, there is an essential difference between the prewar forms and the present forms of the gold currency standard: after World War II the domestic circulation in capitalist countries remained completely based on paper money, and the privilege given to the foreign holders of national currencies to redeem their holdings for dollars and through dollars for gold bullion became unrealizable in practice. This was especially true in the United States, which because of its reduced gold reserves abstained in practice from exchanging paper dollars for gold even to governments and central banks of other countries. Such exchange was officially discontinued on Aug. 15, 1971.

M. G. POLIAKOV

gold standard

a monetary system in which the unit of currency is defined with reference to gold
References in periodicals archive ?
It is that between a gold standard founded on custom-based or "private" law, and one resting upon statute or "public" law, that is, on government legislation.
But before I can do so I must first review the difference between custom-based law and legislation, and then show how the development and flourishing of the historical gold standard depended more on the former than the latter.
It follows that any scheme for recreating a durable gold standard by means of legislation calling for the Federal Reserve or other public monetary authorities to stand ready to convert their own paper notes into fixed quantities of gold cannot be expected to succeed.
This vestige of ancient legislators' interference in money's free development was to play a crucial role, first in die substitution throughout Western economies of die gold standard for previous silver and bimetallic standards, and eventually in that standard's own undoing.
In the absence of banks, having a gold standard simply means having coins embodying standard gold units serve as generally accepted exchange media.
The modern gold standard can thus be said to have involved not one but two kinds of commitments.
Michael Bordo (2008), for example, claims that "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.
In truth, the classical gold standard was to a considerable degree a spontaneous development, founded not on statutes but on customary law.
In short, countries abided by the rules of the gold standard game because that game was played by private citizens and firms, not by governments.
Although it may seem paradoxical, our understanding of the classical gold standard suggests that, if that standard had been deliberately set up by governments to enhance their borrowing ability, it is unlikely that it would have worked as intended.
By the end of the First World War, these circumstances had sufficiently eroded to make the gold standard untenable.
The most recent of his journal articles is "Gold-Point Arbitrage and Uncovered Interest Arbitrage under the 1925-31 Dollar-Sterling Gold Standard," Explorations in Economic History (1993).