What is the gold standard?

The term "gold standard" has many meanings. First of all, the gold standard is a monetary system in which a free conversion of monetary units to gold takes place within the state. The exchange rate is determined by the central bank of the state and is fixed.

The concept and essence of the system

A gold-linked monetary system in most countries began to exist from the end of the 19th century. Great Britain switched to this system in 1816, France in 1803, and America in 1837.

At the global level, the gold standard is a currency system of relations in which each country has brought its own monetary unit in accordance with it. State-owned banks or governments in these countries were required to purchase and sell currency at a fixed price.

The basic principles of the system:

the conversion was provided both within the state and outside the country, which did not allow the issue of monetary units without taking into account the gold reserve;
gold bars were freely exchanged for money within the state;
gold was freely imported and exported to international markets.

Advantages and disadvantages

The system made it possible to regulate inflationary processes, but still had a number of drawbacks:

each country that adopted the gold standard was completely dependent on increasing and decreasing gold production, on the discovery of new deposits of precious metal;
inflation processes began at the transnational level;
the government was deprived of the opportunity to pursue an independent monetary policy within its state; therefore, it was not possible to solve internal economic problems.

However, the gold standard is not only disadvantages, but also a huge list of advantages:

general stability was achieved, both in foreign and domestic policies of countries united by the gold standard;
the flows of gold that flowed from the treasury of one state to the treasury of another stabilized exchange rates, international trade began to develop rapidly;
stability of exchange rates was achieved;
companies operating in foreign and domestic markets have the opportunity to forecast profits and future expenses.

Varieties

Historically, there are three forms of the standard.

The Gold Coin Standard is the world's first gold standard. Any person with enough precious metal or jewelry had the right to mint the required number of gold coins. The system does not impose any restrictions on the import or export of gold from the country.

Basic principles:

the gold content of each national currency was established;
gold was an international means of payment;
gold was exchanged for money freely;
the deficit was covered in gold bullion;
each state maintains an internal balance between gold reserves and supply for monetary units.

The exchange rate of any country could not deviate from parities by more than 1%, in fact, a fixed rate was present. The main advantage of the system is that inflation is completely ruled out. When extra monetary units appeared, they were withdrawn from circulation and turned into gold.

Gold bullion standard. This system implied that the gold standard is gold bullion, not coins. The main goal of the system is to eliminate the random purchase and sale of gold. The stock of precious metal was stored only in the Central Bank, because it was not possible to go with 1 kg of gold in your pocket, all the more so to pay it, buying food. The policy did not allow to increase the issue of monetary units, which would lead to an increase in prices within the country, when prices increased on the foreign market.

The gold exchange standard is essentially the same as the gold bullion standard, but with one difference. The central bank could not only sell precious metal bullion, but also give out mottos representing gold at a fixed price. In fact, not only a direct relationship between gold and currency was established, but also an indirect one.

Gold Standard

The system is better known as the Bretton Woods, which was adopted in 1944 at the International Conference. Basic principles:

1 troy ounce of gold cost $ 35;
all countries that became participants in the system adhered to a strictly established exchange rate;
the central banks of the participating countries maintained a stable exchange rate in the country through foreign exchange interventions;
the course could only be changed through devaluation or revaluation;
The IMF and IBRD entered the organizational system.

But the main goal that Washington faced was to strengthen the shaky dollar position by any means.

Russian history

The introduction of the gold standard in Russia began in 1895. Minister of Finance S. Witte managed to convince the emperor of the need to introduce a gold standard. Indeed, at that time Russia possessed a huge amount of gold: as of 1893, about 42 tons were mined, and this amounted to 18% of the entire world level.

Since 1896, new coins appeared. It was the duty of the state bank to freely exchange credit tickets for coins.

At that time, Russia was the leader in the gold standard, and the ruble was the most stable currency in the world. The internal and external course could not even change the revolution of 1905-1907, the ruble also withstood the pre-revolutionary situation until 1913.

The golden era of the Russian Empire ended around 1914, when 629 million golden moments disappeared without a trace and the money exchange in the country stopped. Later, there was still an attempt to restore economic stability in the country by issuing gold pieces of gold, but this did not affect the stabilization of the situation. The country had to completely abandon the gold standard system with the beginning of industrialization.

The situation after the first and second world war

During the first and second world war, in almost all countries, gold was supplanted from internal circulation. Most recently, gold circulation ceased in the United States in 1933. Gold exchange operations were carried out only as a last resort, if it was necessary to pay off the balance of payments deficit.

All countries have completely switched to paper currency. The era of the introduction of the gold standard in the form of a gold divisional system, which operates to this day, has begun. However, the international monetary system of the pre-war period is fundamentally different from the modern one. The Bretton Woods system ceased to exist in 1971, and dollars were no longer exchanged for gold and vice versa.

Since this year, the dollar has ceased to be an integral part of revenue management policies, the exchange rate has become floating, and the US currency has ceased to be an international reserve asset.

The consequences of abandoning the gold standard

At the same time, the rejection of gold violated a clear order in the economic relations of countries, but accelerated the growth of world lending. In fact, the United States could buy anything and anywhere, paying off the world with non-convertible dollars. The foreign trade deficit has reached its maximum critical point since the 1990s, but no one has tried to cope with the situation. As a result, by about 2007, factories in America and most of Europe were closed, and production was moved to Asia. How it all ends, the whole world will soon see.

Gold content

Gold standard and jewelry are a little different. The highest gold grade in Russia is 999. Such a precious metal is used in the manufacture of ingots. For jewelry, gold 750 and 585, 900 are used.

The highest fineness does not allow jewelry to be made with good wear resistance, since gold is obtained: