ALTERNATIVE INTERNATIONAL MONETARY STANDARDS
topic 19.1
THE GOLD STANDARD 1880-1914
Currencies had a fixed rate of excahnge with gold.
For example $20.67 = 1 ounce of gold
So all countries had in effect fixed their rates of exchange against other countries' currencies.
The benefit was price and exchange rate stability.
If a country tried to inflate its currency it would lose gold as people turned in their money for gold at the fixed rate. Since no country has unlimited gold reserves this prevented inflation.
A disadvanatge was that growth in the world gold supply determined the rate that money could grow. If too much gold was supplied there would be inflation, too little and there would be deflation.
After the first world war there were attempts to restablish this system, but they failed. A strict gold standard was not sustainable as countries tried to print more mony. Eventually even the US gave up on the gold standard.
