Gold standards

Out of those people who think that the economy of America was taken the wrong direction for

the economy, some think that it goes back in the history when President Nixon eliminated the

gold standards, according to which the dollar rate is linked to the gold and is backed by and can

be exchanged for a fixed amount of gold. Ever since the dollar has been used as the fiat currency,

and the rate of the dollar is measured as valuable simply because the government said so.

Keeping these arguments from these people who are in favor of adopting the gold standard in

front, the question that is important to be asked now is what impact it would create now in the

current world if the gold standards are implemented again.

Gold standards, as compared to the claims that are made for them that they keep the prices

stable, are highly affecting the rate of inflation and deflation. The economic experts present that

gold standards make the prices high and volatile. Even if the price of gold is kept to a fixed rate,

there are still the demands that go up and down. In this way, when there is an economically

uncertain condition, people will hoard more gold, and this will decrease the price. When the

money is taken out of the system in the form of hoarding the gold, there are chances that the

money available for the market transaction and the economic activities will decrease

(Wolchover, 2012). When there is less money in the market for circulation, there are chances that

the prices in the market will go up and the unemployment will increase, forcing the government

to adjust the interest rate in order to increase the economic activities. If we look at the history

and rely on the numbers when there were gold standards practices in America, the employment

rate was 2%, and the price volatility was 13% higher(Wolchover, 2012). Moreover, when there

are gold standards practices, there are increased chances of inflation as there is more gold
discoveries part of the economic activities. Where there is an unpredictable increase in the

money provided to the economy, it tends to be less beneficial.

Another significant drawback of using gold standards is the lack of support for the economic

condition of the economy. When there are conditions like inflation and sudden shocks to the

economy, the governments are not able to seek help from the monetary policies and the

strategies. Moreover, when there is a war condition in the country, the state is unable to create

more money in order to respond to the war. In this way, any small change in the economy will

turn it to face a higher intensity to show the drastic impact on the economy. The basic reason

behind this is the lack of strategies that would help them to overcome any of such conditions

(Wolchover, 2012). If America had understood the importance of the monetary policy and the

inflexibility that is caused by the gold standards, it could use the example of the great depression

of the 1930s. If the American government had taken rapid actions, it would have decreased the

impact of the depression by eliminating the gold standards and curbing unemployment and the

rising pricing, and the economic conditions could have improved to a large extent. If we analyze

the recession of 2008-09 on the basis of the gold standards, it was the aggressive monetary

policy and the financial strategies that were able to prevent the great depression during that

period. If the gold standards had been applied in the country, the government wouldn’t have been

able to take the measures that would help them to reduce the magnitude of the economic

disparity, and the results would have been disastrous. In this way, the gold standards don’t help

the economy in times of shocks and hard times, leading the economy to face depression.

However, there could have been an increased benefit for the economy since it could have

increased the monetary base as much as they wanted or deemed necessary. There is more money
able to be held in the banks with the help of gold standards and keeping the dollar rate the same

during any such period (Lewis, 2021).

The gold standards won’t only affect the economy directly but also there have to have a huge

expense on producing and maintaining the gold coins, and according to the experts, the

maintenance of these gold coins takes 2.5% of the gross national product (Wolchover, 2012).

Keeping this front, it can be said that the current standards are easier to handle as compared to

the gold standards. Therefore the use of gold standards can lead the economy to greater issues-

particularly these are associated with the claims that are made by the supporters of the gold

standards, which say that the gold standard help to stabilize the money, which can’t be done by

the gold standards.

There isn’t enough gold present in the country that could meet the requirement of the world for

the gold, and in the current world, it can be presented, regardless of the conditions that are faced

by the economy of the country, there won’t be any action taken for the sake of the reviving the

economic conditions (PBS NewsHour, 2012). In this way, there aren’t enough benefits from the

gold standards that can make people agree on the implementation of the gold standards again and

therefore; the current system is supported more by the economic experts.

If the world is gone back to the old standards of gold, there are several areas of concern that are

taken into consideration that are used to make the final decision about the monetary policy. The

gold standards don’t support the security of the economy, and therefore the hard time, the gold

acts as the hard money and can’t be used urgently (PBS NewsHour, 2012). In this way, the

economy will not be able to survive through the hard times and leading to the chances of

depression by the economy. Money, on the other hand, is able to survive these situations, such as
during the pandemic, the countries were able to get out of the miseries; however, the gold

standards won’t have done that.

References:

Lewis, N. (2021, June 29). What If We Had A Gold Standard System, Right Now? Forbes.

https://www.forbes.com/sites/nathanlewis/2020/03/27/what-if-we-had-a-gold-standard-

right-now/?sh=394ea7973e58

PBS NewsHour. (2012, July 4). What Would Happen to Money Supply if We Returned to the

Gold Standard? https://www.pbs.org/newshour/economy/what-would-happen-to-money-

supply-if-we-returned-to-the-gold-standard

Wolchover, N. (2012, March 16). What Would Happen If We Returned to the Gold Standard?

Livescience.Com. https://www.livescience.com/19126-gold-standard-bad-idea.html