What is the gold standard?

The gold standard is a type of coinage. It is based on the fact that the value of a monetary unit is fixed taking as a reference a certain amount of gold.

The monetary system of the gold standard implies that the issuer of monetary units owns the quantity of gold equivalent to the monetary units that it issues. Therefore, the gold standard established the value of a country's currency based on the gold that that country had.

History and evolution of the gold standard

The gold standard was used for the first time in England in 1818, this being the first record in which the use of paper money exchanged for a certain amount of gold defined by a fixed price. Throughout this century the gold standard became international when the majority of world powers adopted this monetary system.

The use of this equivalence between gold and money spread during the nineteenth century, as a consequence of the need to implement fixed exchange rates between different countries, as well as to carry out an exchange offoreign exchange to be stable in order to promote global trade.

This remained so until after the First World War, the disadvantages of the gold standard began to be considered. In 1944 and as a result of the conference organized by the United Nations, the use of the dollar as global currency was approved, although the use of the gold standard was maintained until 1971.

In that year the gold standard ceased to be used worldwide when US President Richard Nixon decided to abolish its use, thus ending the link that existed between gold and the world monetary system. Since then the banknotes and coins issued by central banks do not bear any kind of relationship with gold.

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