The History Of The Gold Standard

How much do you know about the gold standard? This standard basically determines how much a currency is worth based on the current value of gold. Keep reading if you want to learn more about the history of the gold standard.

Gold was originally used as a form of currency because it is a valuable metal. People would trade a certain quantity of gold against goods. Gold coins then appeared to make measuring the quantity of gold exchanged easier. Instead of weighing the gold, merchants would refer to the face value of the gold coins exchanged.

This system was efficient as long as the exchanges occurred on a small scale. As modern economies appeared, it became obvious that trading gold with another country was not a good option. Each government wanted to keep as much gold as possible within their borders for a stronger economy. Governments also became more involved in issuing coins that could be used for exchanges.

In 1792, the United States government passed the Mint and Coinage act. This act designed the government as the owner of the country's gold reserves and the reserves would be kept by the Bank of the United States. A small amount of gold would be used in each dollar coin even though the amount of gold present in the coin would not quite amount to a dollar.

This system allows a country to keep a gold reserve and ensure the value of the official currency. This is the best way to prevent illegitimate currencies from appearing. Issuing coins that contain only a portion of their value in precious metals allows the government to issue a large quantity of coins and make exchanges easier. This system was developed even further with the apparition of paper money. The value of a bill is guaranteed by the Bank of America even though the paper money in itself is not valuable.

The gold standard became more popular around the world as countries made a transition to a modern economy where the government needs to back up the value of the official currency. A government can also prevent an economic crisis by issuing more or less coins and bills depending on the current value of the gold reserves. This system makes economic exchanges a lot easier. More recently in the history of the gold standard, new technologies have proven how beneficial this mechanism is. Money changes hands every day without any kind of material exchanges thanks to credit cards or online transactions. The exchange of value can take place without having any precious metal involved in the transaction thanks to the gold reserves kept by governments.

There is a lot more to learn about the history of the gold standard but this short article should have given you a good idea of why this standard is so beneficial to economic exchanges. Using the gold standard basically allowed countries to move forward with their economy and foster exchanges between entities or individuals.

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