Gold Standard

The gold standard was a standard that linked a country’s currency to a gold quantity through which it could be exchanged. This gave a relatively stable value of money since the holders of the paper currency could exchange their money for a fixed amount of gold. This proved to be advantageous in achieving long term price stability and curb on the issue of base money for the economy. In order to make the given currency steady and predictable the system was based on linking it to some other physical product. 

 Nonetheless, over time, the rather rigid form of the gold standard caused its dethronement in the twentieth century. With the global economies’ growth and complexity the desire for a more free monetary system emerged. They realized that this type of standard, gold, had its shortcomings; it could not respond to quickly changing economy or to crises. In the course of time, majority of the countries shifted from the gold standard to fiat money system, a type of money whose value is based on the trust and confidence of the public in the government and its ability to honor its obligations.

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