GOLD STANDARD

Meaning
A monetary system where the value of circulating money is
linked to the value of gold.

. Or

The monetary system adopting gold as the medium of

exchange was termed as gold standard.
 HISTORY
The concept of gold standard was originated in
England in the 17th C. During that period, pound was
minted of gold coins. The ever official announcement
in the year 1816 with the declaration of gold as legal
and official tender in England. The concept of gold
standard was treated as the oldest exchange rate
regime prevailed during the period of late half of the
19th Century till the end of the 1st World War.
MINT PAR PARITY THEORY
• Under this system, the currency in use was made of gold or was
convertible into gold at a fixed rate.
• The value of the currency unit was defined in terms of certain weight of
gold, that is, so many grams of gold to the rupee, the dollar, the pound
etc.
• The rate at which the standard money of the country was convertible
into gold was called the mint price of gold.
FEATURES
• The value of currency was fixed by government in
terms of a given weight and quality of gold.
• It had the option of two way convertibility.
• Free flow of goods allowed among countries by
facilitating export and import of gold among gold
standard countries.
FUNCTIONS
• To regulate the volume of currency.
• To maintain the stability of exchange rate.
ADVANTAGES
• It was an easy system to introduce and operate
• It provided for a very high level of stability in
exchange rates which promoted both international
investment and trade.
• It provided a fully secured system for settlement of
international transaction.
DISADVANTAGES
• The cost of manufacturing gold gradually increased
to levels beyond the official prices.
• Countries with persistent trade deficit suffered
from recession resulting in reduced investment and
unemployment.
BRETTON WOODS
SYSTEM
BRETTON WOODS SYSTEM
The Bretton woods system was the first system used
to control the value of the money between different
countries. It meant that each country had to have a
monetary policy that kept the exchange rate of its
currency with in a fixed value plus or minus one
percent in terms of gold.
 HISTORY
Ueven and rigorous changes in the exchange rate in
the international market during the post World War
period had created the urge of establishing an
effective and systematic interanatioanl monetary
system. The solution came out as a decision taken in
the Bretton wood Conference for establishment of
International monetary fund (IMF) in the year 1945.
Due to its origin, IMF is popularly termed as Bretton
wood system. It was established for the purpose of
controlling and regulating exchange rate to facilitate
international trading activities.The Bretton wood
system of monetary management established the rule
for commercial and financial relations among the
United Nations, Canada, western European countries,
Australia, and Japan after the 1994 Bretton wood
agreement.
FEATURES
• Avoiding unstable exchange rate and competitive
devaluations caused by 2 nd World War.
• Financing the reconstruction of Europe during the
post World War period.
THANK YOU