Gold standard is the monetary system used for a longest time
in the history. Its existence can be traced back to 643 B.C. in Turkey, when
they started make gold-contained coin as their currency. Nowadays, most of the countries
abandoned gold standard—U.S. abandoned its gold standard in 1933—and now U.S.
dollar serves as a global standard for currencies around the world.
In gold standard, the value of a country’s currency is
determined based on how much of the country’s money is equal to one ounce of
pure gold. For instance, let’s examine the following hypothetical situation:
|
|
U.S.
(Dollar)
|
Argentina
(Peso)
|
|
1 ounce of gold
|
= 100 Dollar
|
= 25 Peso
|
|
1 unit of currency
|
= 0.01 ounce
of Gold
|
= 0.04 ounce
of Gold
|
|
Therefore,
in this hypothetical scenario, 1 Dollar
< 1 Peso
|
||
Note that, just because one’s unit of currency is stronger
than the other one, it does not imply that one’s economy is better than the
other. Even the country’s unit of currency is stronger than others, there might
not be enough money circulating in the country.
Yes! Great historical evidence of the gold standard, and how it was dropped. One thing I'm curious about, personally, is what the U.S. Federal Reserve thinks of this evolving form of currency. I like the historical framing your povide. Good research skills.
ReplyDeleteThank you for the question! I may have to do more research on P.O.V of U.S. Federal Reserve.
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