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Gold Standard

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http://econ.economicshelp.org/2009/02/gold-standard-explained.html http://books.google.co.za/books?id=tuP0CAAAQBAJ&pg=PA140&dq=Gold+Standard+explained&hl=en&sa=X&ved=0CBwQ6AEwAGoVChMIwNPEmLHExwIVRdYUCh3QlArs#v=onepage&q=Gold%20Standard%20explained&f=false http://econ.economicshelp.org/2009/02/gold-standard-explained.html

Verskaf ‘n kort geskiedenis van die Goue Standaard as ‘n internasionale monetêre stelsel, en verskaf argumente teen die terugkeer na die Goue Standaard. / Provide a brief history of the Gold Standard as an international monetary system, and provide arguments against returning to the Gold Standard.
Introduction

Body.

The Gold Standard was a monetary system where the standard unit of currency was a fixed weight of gold at a fixed price with an intrinsic value. The Gold Standard system fixed the value of paper money (also known as fiat money), which circulates as a medium of exchange, by allowing it to convert into a certain amount of gold on demand. Furthermore, the rates of exchange between national currencies were also fixed.
The advantage of the gold standard is that the amount of gold was relatively stable. It means that governments couldn't print money and create inflation. It also created confidence in the financial system.
From 1871 till 1914 the Gold Standard was at its pinnacle.
During this period, there were near perfect political contexts which existed.
Governments tried to cooperate in order to make the Gold Standard system work, but the gold standard broke down during World War I, as major belligerents resorted to inflationary finance, and was briefly reinstated from 1925 to 1931 as the Gold Exchange Standard. Under this standard, countries could hold gold or dollars or pounds as reserves, except for the United States and the United Kingdom, which held reserves only in gold. This version broke down in 1931 following Britain’s departure from gold in the face of massive gold and capital outflows. In 1933, President Franklin D. Roosevelt nationalized gold owned by private citizens and abrogated contracts in which payment was specified in gold. Between 1946 and 1971, countries operated under the Bretton Woods system. Under this further modification of the gold standard, most countries settled their international balances in U.S. dollars, but the U.S. government promised to redeem other central banks’ holdings of dollars for gold at a fixed rate of thirty-five dollars per ounce. Persistent U.S. balance-of-payments deficits steadily reduced U.S. gold reserves, however, reducing confidence in the ability of the United States to redeem its currency in gold. Finally, on August 15, 1971, President Richard M. Nixon announced that the United States would no longer redeem currency for gold. This was the final step in abandoning the gold standard.
Widespread dissatisfaction with high inflation in the late 1970s and early 1980s brought renewed interest in the gold standard. Although that interest is not strong today, it seems to strengthen every time inflation moves much above 5 percent. This makes sense: whatever other problems there were with the gold standard, persistent inflation was not one of them. Between 1880 and 1914, the period when the United States was on the “classical gold standard,” inflation averaged only 0.1 percent per year.
Conclusion
Although the last vestiges of the gold standard disappeared in 1971, its appeal is still strong. Those who oppose giving discretionary powers to the central bank are attracted by the simplicity of its basic rule. Others view it as an effective anchor for the world price level. Still others look back longingly to the fixity of exchange rates. Despite its appeal, however, many of the conditions that made the gold standard so successful vanished in 1914. In particular, the importance that governments attach to full employment means that they are unlikely to make maintaining the gold standard link and its corollary, long-run price stability, the primary goal of economic policy.

(I don’t know how to put this in ):
In fact, what Keynes actually said was:
“In truth, the gold standard is already a barbarous relic. All of us, from the Governor of the Bank of England downwards, are now primarily interested in preserving the stability of business, prices and employment, and are not likely, when the choice is forced on us, deliberately to sacrifice these to outworn dogma, which had its value once, of 3 pounds, 17 shillings, 10 1/2 pence per ounce. Advocates of the ancient standard do not observe how remote it now is from the spirit and the requirements of the age.” A Tract on Monetary Reform, 1924…...

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