What is the Gold Standard?

The gold standard is a monetary system where a

country's currency or paper money has a value directly linked to gold. With the
gold standard, countries agreed to convert paper money into a fixed amount of
gold. A country that uses the gold standard sets a fixed price for gold and buys and
sells gold at that price. A gold standard, or a gold standard currency, is a monetary
system in which the monetary unit is supported by the value of physical gold
bullion. While the money in circulation is not necessarily made out of precious
metal, the idea is that the unit of currency can be exchanged for a fixed amount of
gold. For example, if the British government were to set the price of gold at £500
an ounce, the value of the pound would be 1/500th of an ounce of gold. What are
the characteristics of gold standard? All gold coins are held as standard coins and
considered unlimited legal tender. (iii) All other types of money (paper money or
token money) are freely convertible into gold or equivalent of gold. (iv) There is
unlimited coinage of gold at no cost. (v) There is free and unlimited melting of
gold. What was the purpose of the gold standard? The gold standard was a
commitment by participating countries to fix the prices of their domestic currencies
in terms of a specified amount of gold. National money and other forms of money
(bank deposits and notes) were freely converted into gold at the fixed price. There
are 3 well known types of gold standard: Gold Specie StandardIn this system the
unit of currency is either based on the value of a gold coin that is in circulation, or
has the same value as that gold coin. This doesn’t mean that all coins in circulation
are necessarily made out of gold, but it guarantees that the nominal value of the
currency is fixed by the intrinsic value of the gold coin being circulated. A gold
specie standard was adopted in Britain in the 19th Century after the Royal Mint
began to circulate gold sovereigns, crowns, half-crowns and copper farthings. It
lasted for nearly a century, before the British Empire abandoned it during World
War 1