A gold standard uses gold either directly or indirectly as money.In a gold standard,gold itself is used in transactions,where all prices are expressed in terms of amount of gold.The gold standard means determing the value of the dollar to the price of gold.This is itself a big con for using Gold standard,since the amount of gold the country owns limits the amount of money it can print.
Also practically, there’s not enough gold in the world to return to a gold standard.By tying the value of the dollar to gold, the government cedes control of monetary policy, making it unable to increase the money supply in times of economic crisis.
The gold standard appears less likely to deliver superior price stability than the current system. Rather, money supply would be determined by the variances of the global gold market, which would only coincide with domestic economic needs. Even if gold markets were perfectly stable, the gold standard would likely induce a damaging level of deflation.
Also,since gold is a commodity whose price itself varies to a great extent every single day, a central bank like the Federal Reserve would have to raise and cut interest rates based not on how well the economy is doing, but on what’s going on in the gold market. For example, in the United States, if gold was discovered in any city or state,the amount of gold in the economy goes up, which will cause an inflation, whereas if the economy is growing faster and there’s a shortage of gold, that will cause a deflation. So over shorter periods of time, the country will frequently have both inflations and deflations…
On the practical side, it is an accepted fact there is not enough gold to meet the needs of a global gold standard and achieving that much gold would be very expensive. In a modern world, the commitment to the gold standard would mean that we are swearing that under no circumstances, no matter how bad unemployment gets, are we going to do anything about it using monetary policy. Even the history states that the gold standard didn’t work well and it worked particularly poorly after World War. Indeed,the gold standard was one of the main reasons that the depression was so deep and long. And a striking fact is that countries that left the gold standard early and gave themselves flexibility on monetary policy recovered much more quickly.The variability of inflation was much higher during the gold standard period than we have now. During the gold standard era we had financial crisis about every 10 to 15 years.
Hence the period of the classical gold standard was not a period of high growth and will never be a period of high growth in future.
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