|
 |
The Gold Standard The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold and currency issuers guarantee, under specified rules, to redeem notes in that amount of gold. Nations that employ such a fixed unit of account, and which will redeem their notes to other nations in gold, in principle, share a fixed currency relationship. The intent is to create a system that is resistant to runaway credit and debt expansion, and to enforce a system where currency cannot be created by government fiat, and will, therefore be safe as a store of wealth against inflation. This is intended to remove currency uncertainty, keep the credit of the issuing monetary authority sound, and encourage lending.
The use of gold as a monetary standard has a long and varied history, from the period of time when coinage was the primary means for regulating money supply, all the way through the 20th century, where it was used to regulate international trade flows. Currently the gold standard, despite having advocates, has fallen out of use in almost all nations.
Due to its rarity and durability, gold has long been used as a means of payment. The exact nature of the evolution of money varies significantly across time and place, though it is believed by historians that gold's high value for its utility, density, resistance to corrosion, uniformity, and easy divisibility made it useful both as a store of value and as a unit of account for stored value of other kinds — in Babylon, a bushel of wheat was the unit of account, with a weight in gold used as the token to transport value. Early monetary systems based on grain used gold to represent the stored value. Banking began when gold deposited in a bank could be transferred from one bank account to another by a giro system, or lent at interest.
When used as part of a hard-money system, the function of paper currency is to reduce the danger of transporting gold, reduce the possibility of debasement of coins, and avoid the reduction in circulating medium to hoarding and losses. The early development of paper money was spurred originally by the unreliability of transportation and the dangers of long voyages, as well as by the desire of governments to control or regulate the flow of commerce within their dominion. Money backed by a specie is sometimes called representative money, and the notes issued are often called certificates, to differentiate them from other forms of paper money.
Through most of human history, however, silver was the primary circulating medium and major monetary metal. Gold was the metal that was used as an ultimate store of value, and as means of payment when portability was at a premium, particularly for payment of armies. Gold would supplant silver as the basic unit of international trade at various times, including the Islamic golden age, the peak of the Italian trading states during the Renaissance, and most prominently during the 19th century. Gold would remain the metal of monetary reserve accounting until the collapse of the Bretton Woods agreement in 1972, and remains an important hedge against the actions of central banks and governments, a means of maintaining general liquidity, and as a store of value.
|
Other sites of interest
VLF Metal Detectors GoldResearch.com
Rhodium Prices AlaskaGoldProspecting Kitco 
 |