What Was The Gold Standard?
The gold standard is not a complicated concept or term. It simply refers to the monetary system that sets the values for paper currency based on fixed quantities of gold. No governments today actually have any attachment of their gold and paper money systems, because the fiat money system replaced the gold standard many years ago. However, in ancient times, the gold standard was what the entire monetary world was based on. One U.S. dollar would have been worth so many gold coins, while one Euro might have been a completely different value.
Greece, Rome, and the Persian Empire all played a large role in the history of gold and setting the gold standard for centuries to come. Late in the 18th century, however, a silver shortage caused the need for a production of bank and demand notes, which were used as money to make up for the shortage. This is likely where the gold standard came from, because the bank notes had to be marked as to how much silver they actually represented. The same thing happened in Britain a few years later, which caused them to issue token coins and strike over top of foreign coins.
After many different complications, the Bank Charter Act was established in 1844, which established that all money would be in the form of Bank of England notes, which were backed by gold. This marked the full gold standard being set for all money in Britain. The United States adopted their own silver standard in 1785, which was based on the Spanish milled dollar. This started a long journey of getting to the U.S. dollar, which didn’t actually happen until the 1930s. Before that, silver use was simply reduced and often suspended when there were shortages just to keep the coins in circulation.
The international gold standard was not done until Germany became a unified country and set the gold standard, which caused many other countries to follow suit. This was done to create profit in generating money, which would give governments more purchasing power in times of economic crisis and need. Gold standards were adopted by most of the world by the late 1800s, with the U.S. joining the ranks in 1900. Then in 1971, the gold standard was nullified by Nixon, which started the entire system break down and caused the price of gold to skyrocket compared to its stability for many decades. The fiat system was implemented during this time, which eradicated the need for a gold standard.
Now that there isn’t a gold standard any longer, the price of gold is based on many factors in the market and has since become a good investment. With the recent financial bailouts and stimulus packages owning gold is even more important because it is sure to increase in value.
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