A Short Explanation Of What The Gold Standard Is

You may have heard the term gold standard being used before, and there is a good chance you are not entirely sure what it means. The gold standard is a monetary system where the currency or paper money a country issues is directly linked to the stockpiled gold the country has. As a country has a fixed amount of gold, they cannot issue more paper money than they have in gold, as the gold backs their currency. It specifies the price of the paper currency using gold that the country holds. An example is Australia, which when it sets the price of gold at $600 an ounce, their paper currency would be worth 1/600th of an ounce of gold.

Where Is The Gold Standard Used?

The gold standard has previously been used in most countries worldwide, but it is no longer used in any country. Great Britain got rid of the gold standard in 1931 and was soon followed by the USA who dropped it in 1933. They replaced the gold standard with what is known as fiat currency, which is an order by the government that the issued currency must be accepted as a form of payment. Each country throughout the world has fiat currency, which is different for most countries.

A fiat currency is not backed by anything, so its value is determined by supply and demand and the stability of the government. Fiat currency gives central banks greater control over their economies, but there are dangers with this type of currency. When you visit gold dealers in your area, you can find that if the government prints too much currency, its value can decrease, and it will cost you much more to buy gold than it did previously. If you’re thinking about purchasing gold, City Gold Bullion is the top place to buy gold Brisbane investors prefer.

A Throw Back To The Gold Standard

You can still see evidence of the gold standard in some of the currencies around the world. For example, if you look at banknotes from the UK, a £10 note, for example, you will see that it says on it ‘I promise to pay the bearer the sum of ten pounds.’ Goldsmiths and bankers would hold gold deposited with them and issue promissory notes to the depositor, these can then be transferred to other people, and they can claim the gold using the note they were given.

The Problem With Fiat Currencies

There is one flaw with fiat currencies and that is they also allow governments to manipulate their currencies much easier. When a country is running low on funds, they can simple print more money to give them the funds they require. However, doing this can have a significant effect on the economy and you can find that inflation will increase which will affect the economy even more. When a government prints too much money and inflation rises, your money will not go as far, and the prices of goods and services will increase significantly.

Will We Ever Use The Gold Standard Again?

There have been calls for us to return using the gold standard, which will help reign in some governments’ spending. However, it is unlikely that we will ever return to this currency system. Governments like to have control of their economies and manipulate them when they want, so it is doubtful we will ever use the gold standard again.