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The Gold Standard 1Running head: THE GOLD STANDARDThe Gold StandardMark Z GriggAxia College of the University of Phoenix
 
The Gold Standard 2International Exchange and the Gold StandardInternational trade has become a way of life in today’s society. Countries could notfunction as we know them without the ability to retrieve goods, services, and resources fromother regions. As we have divided up the globe into groups we have limited what we can usebecause it belongs to another. To get what we need we must either take it by force or tradesomething of value to the group that has the desired product. From the seventeen hundreds all theway until World War One there was the gold standard. We will take a moment to reflect on thegold standard, the impact that it had on international monetary exchange, and whether it shouldbe revived.First let us take a look at what the gold standard is and how it was used. On December22, 1717, Sir Isaac Newton, master of the English mint established a set dollar value for a certainamount of gold (Ball, McCulloch, Frantz, Geringer, & Minor, 2006). This established anexchange rate for money to gold or gold to money. Since gold had long been an establishedmeans of international purchases and exchanges what happened next only makes since. If onecountry has an established price for a certain amount of gold and another country does to then itonly stands to reason that that amount of currency is of the same value. Since the value of onecurrency to the other has been established we have an exchange rate for transferring funds orachieving purchases from one country to another.We see examples of this still in the United States today. We are all aware of the gold thatthe treasury department holds in Ft. Knox. However the gold standard has fallen apart primarilybecause countries spend more than they can back in gold and print more currency than they cancash out in gold. To continue to attempt this would result in huge amounts of inflation of thecurrency. This is what happened to England after World War One when debts depleted gold
 
The Gold Standard 3reserves and costs of the war exceeded their ability to pay creating a large national debt (Bordo,2008). While the United States still maintains a gold reserve it no longer exchanges its currencyfor gold or determines its worth through gold. On August 15, 1971, President Richard M. Nixonannounced that the United States would no longer redeem currency for gold. This was the endingof the gold standard here in the United States (Bordo, 2008).Today our exchange rates work in complicated manors. Exchange rates change andfluctuate constantly. The main system used to determine a currency's exchange rate is floatingcurrency. The market determines a floating exchange rate. This is determined by supply anddemand, which is in turn driven by foreign investment, import to export ratios, inflation, and ahost of other economic factors (Nagaprasad, 2007). Most countries with mature, stable economicmarkets will use a floating system. Almost every major nation uses the floating system, includingthe U.S., Canada, and Great Britain. Floating exchange rates are considered more efficient,because the market will automatically correct the rate to reflect inflation and other economicforces (Nagaprasad, 2007).This is the why changes in the exchange, trading, or stock markets in any country canhave a direct impact on the global economy. Since the value of the currency is determined by thedemand for the currency then a change in that market affects all those who hold that currency.There has been a call for one organization to regulate international exchange rates. There hasalso been a call since the nineteen eighties to return to a gold standard (Bordo, 2008). The idea isthat if there is a standard for international exchange such as gold it will allow countries exportinggoods to receive the value of those goods. As it stands now once a country take payment in acurrency then a devaluing of that currency results in a loss. If that currency was set in one
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