The Gold Standard

In the past, paper money was equilivant to a piece of easy-carrying gold, as the value of the paper money was backed by the gold. Then the total amount of money that one country could produce under the gold standard is limited by the gold reserves owned by the country; therefore, many modern policies are not available under the gold standard and when there is an economic crisis, the monetary system has its hands tight on creating more liquidity into the market. Moreover, when facing a high level of economic growth, money could experience a deflation as gold could be considered as a fixed amount of resources. Although more gold could be earned through mining, the growth of mining more gold from the underground may not catch up with the speed of economic growth and under the gold standard, it is the national interest to mine gold at its fastest rate all the times. Moreover, it creates inequalities between countries that if all countries use the gold standard, the countries with rich gold resources will have greater advantages than the countries with poor gold resources. These disadvantages of using the gold standard have forced many countries dropping the gold standard.

However, the gold standard has several very strong advantages. Firstly, it can create a long term value stability of the currency. Secondly, because the value of the currency is built on the value of the gold, once s regime has enough gold, it can introduce the gold standard and bring back a monetary discipline back into the system even if the system is very unstable. Thirdly, the credibility of the currency could be ensured by the value of the gold.

To conclude, I feel that the gold standard has some unique and very important qualities that the modern monetary requires, such as long term value stability and decreased uncertainty in international trading. In terms of valuing the currency, the gold standard is the "gold standard"of precisely pricing the value of the currency.