THE GOLD STANDARD

Presented by: Nakshabh

Amey Sawant
Why Gold

The idea of the Gold Standard is to fix the quantity of

money by pegging its issue to a scarce resource gold.

Scarce resource relatively rare

With a known mine supply
stable behaviour in the market
Malleable
Heavy
Difficult to counterfeit
Difficult to destroy
The Gold Standards

Classical Gold Standard 1815-1914

What most people may think the gold standard is?

Gold-Exchange Standard 1926-1931

{gold $} {$ } { European currencies )

New Gold-Exchange Standard 1945-1968

Bretton Woods Agreement 1945
$ is the only key currency
 Classical Gold Standard
Currency weight of gold
1$ = 1/20 oz
1 1/4 oz
The price of gold was fix
exchange rates between currencies were fix
 Gold-Exchange Standard
1926-1931
G
ol The $ was redeemable in gold
d The was redeemable for gold
$ = gold (bars) only for international
transactions
=$ Also the was redeemable by
$
Other currencies were
Eu currencies = redeemable in
Does it means that the amount
This blocks European citizens from gold of money in other countries is
link to the amount of dollars?
And allows paper and bank inflation
1929: was the amount of Dollars really link to the amount of gold?
 1929 consequences for the Gold
Standard
1931 Britain and other
European countries
leave the Gold
Standard

1933-1934 US went
out of the classical
gold Standard

United States remained, after 1934, on a peculiar new form of gold

standard, in which the dollar, now redefined to 1/35 of a gold ounce, was
redeemable in gold to foreign governments and central banks. A lingering
tie to gold remained. Furthermore, the monetary chaos in Europe led to gold
flowing into the only relatively safe monetary haven, the United States. (?)
 New Gold-Exchange Standard
1945-1968
Bretton Woods Agreement
Dollar $ being the only Key Currency
World's currencies returned to the new
G
system at their pre-World War II pars ol
(exchange rates) d
But after the war this rates were
overvalued and the $ artificially $ = gold
undervalued (US exportations )
US government policies after WWII
were inflationary Other Currencies =$
By the early 1950s, the increasing
American inflation began to turn the
tide of international trade (US
exportations )
 How it works? Classical Gold
Standard
Country situation:
A country decides to print more paper money
Inflation imports exports
deficit in the balance of payments with other countries
Payments between countries are settle in gold
outflow of gold for this country
Will force them to correct the situation to stop the loss of gold
Bank situation:
A bank issues to many deposits (loans)
All the above happens
Foreigners (banks or govs? costumers?) call upon to redeem their
deposits
BANKRUPTCY
The fear of bankruptcy will make them behave
 Money functions in the
economy
1 - As a means of exchange / deference of payment

2 - As a store of value

3 - As a unit of account
 Pros
Very good store of value
Controls inflation
Compare to paper money that is inflationary
Deflation
Same amount of money buys more goods
Controls deficit as governments will try to
avoid outflow of gold
Force bankers to be more carful about the
risks they take to avoid bankrupcy
Stabilize the money supply
 Cons
Deflationary crash
Favours the function store of value over means of exchange
Does not allow demurrage of inflation (because it does not
degrade)
Works against producers of goods and services
Creates inequality: it tends to increase even further the
privileges of those with money, allowing them to accumulate for
themselves even more excessive wealth
Deflationary crash

If Gold Standard was suddenly brought back:

In todays economy there is lots of debt (almost all money
is debt).
Because debt is fixed, deflation would make debts harder
to pay, debtors would need more goods and services to pay
their debts.

meaning if the Gold Standard were implemented wholesale

tomorrow, it would probably cause a gigantic debt deflationary
crash! So just as with the Positive Money system, anyone
advocating the Gold Standard should have a gradual, stable
transition to a largely debt-free economy in mind.
 Conflict between store of value and
means of exchange
Gold does not degrade over time (no
devaluation)
Other goods do (clothes, food...)
Favours the user of goods against the producer of them
When money does not rust, those with money have a store of
value immune to deterioration, while those holding goods do
not. Hence those with money will have superior bargaining
power to those with goods.
Making money (gold) preferable to goods, will favour people
tendency to keep it (store of value) instead of use it
(exchange of means)
Making money and end instead of a tool
Gold gives money intrinsic value
As a mean of exchange, value is subjective
 Gessel
Must money, as a commodity, be superior to thecommodities
which, as medium of exchange, it is meant to serve ?... Let us,
then, make an end of the privileges of money. Nobody, not even
savers, speculators,or capitalists, must find money, as a
commodity, preferable to the contents of the markets, shops,
and warehouses. If money is not to hold sway over goods, it
must deteriorate, as they do.
 Should we go back to it? My
questions
Which Gold Standard?
Classical Gold Standard
Would that be fair for countries with no gold?
What price will have? How it would affect market price?
Would it not benefit people owning big amount of gold (meaning
the already rich becoming richer?)
What about undeveloped countries with gold? Would they suffer
wars, as oil wars in order for western countries to control the
supply?

Gold-Exchange and New Gold-Exchange Standards?

Definitely NOT! Why should $ be the only Key Currency related to
gold?
With FRACTIONAL RESERVE LENDING policies, would that really
work?
Conclusions

With properchecks and balances in place the benefits

of paper money over gold outweigh the risks.
As Positive Money advocates via theMonetary Policy
Committee manipulation of currency and conflicts of
interest can be held in check.
In conclusion then, fiat money can accomplish the
aims of the Gold Standard (stabilising the money
supply) without its drawbacks,providing it is made
accountableto the public.
 Quote:
https://www.youtube.com/watch?v=a7GJb0kufQI
Friedman on gold standard
https://www.youtube.com/watch?v=MvBCDS-y8vc
Bill Still
https://www.youtube.com/watch?v=Qz8Kh3FtuCY
Why the U.S. Left the Gold Standard: Origins,
Benefits, Drawbacks (2012)
https://www.youtube.com/watch?v=JEPBbaK8sVI
http://www.positivemoney.org/2012/03/fiat-money-or-g
old-standard/