This system is associated with the circulation of gold coins or with a unit of value in terms of circulating gold coins associated with subsidiary coinage minted from metal of lesser value. Many empires used this particular type of Gold Standard to include the Byzantine Empire, which had a coin named Byzant. However, when this empire ended, people began using a silver standard, which could be seen in Britain around 796 AD when silver pennies were being minted.
Eventually in 1704, Queen Anne proclaimed that a de facto gold standard would be adopted based on the Doubloon, a Spanish gold coin. Then just 13 years later, Sir Isaac Newton developed the Royal Mint whereby the minting ratio changed to go between silver and gold but this caused silver to stop being circulated and the Britain Gold Standard being adopted. Then in 1816, the gold sovereign coin was minted whereby the United Kingdom’s Gold Specie Standard was created, the first powerhouse to change from the silver to the Gold Standard.
By 1873, the United States followed suit with the American Gold Eagle coin. Following this, Canada developed a dual system that was based on the United State’s coin, as well as the gold sovereign. This led to other countries introducing gold coins to include many in Australia and New Zealand.
Gold Exchange Standard
For this, it could be linked to the circulation of coins made of silver or another metal but a guaranteed fixed exchange rate is connected with another country for this Gold Standard, which creates a de facto standard whereby the silver coins has a fixed external value regarding gold independent of the silver value. By the end of the 19th century, some countries that had been holding onto the silver standard were beginning to put these currencies to the Gold Standards established in the United Kingdom and the United States.
While some countries started to put silver coins against the Gold Standard associated with the UK and US to include the British India Rupee, in 1906 the Straits Settlements decided to go with the Gold Standard to the pound sterling. Then at the turn of the century, other countries were pegging silver coins to the US dollar to include the Philippines, Mexico, and Japan. However, in 1908 Siam adopted the Gold Exchange Standard, leaving just Hong Kong and China using the silver system.
Gold Bullion Standard
The last of the options for the Gold Standard is this system, which means that gold coins are not in circulation but an agreement was made by authorities to sell gold bullion on demand for a price that had been fixed. This particular part of the Gold Standard ended in the UK, as well as other countries in the British Empire when World War I began. At this time, treasury notes were used instead of gold sovereigns although the Gold Species Standard was not being repealed.
When the Gold Specie Standard officially ended, appeals to patriotism were successful with people asking the Bank of England to allow paper money to be exchanged for gold specie. Even so, it would not be until 1925 when Britain went back to the Gold Standard in connection with South Africa and Australia. Because of this, the Gold Specie Standard was finally put to rest for good.
That same year, British parliament introduced the Gold Bullion Standard, which did not expect the return of gold species coins. Instead of this, it would be allowed for authorities to sell gold bullion when demanded but at a fixed price. This Gold Standard lasted for the next six years when the UK had to suspend the system because of too much gold being sent overseas. Both New Zealand and Australia were also pressured to get off the Gold Standard due to the Great Depression, with Canada following close behind.
During the years of 1939 to 1942, much of UK’s gold stock was depleted to purchase weapons and munitions from the US and other allied countries for the war. When this happened, Winston Churchill believed going back to the Gold Standard was impractical and even risky. Through discussions, the Bretton Woods System was adopted after WWII whereby some national currencies could convert into gold, which stopped manipulation.
From 1946 to 1971, the Bretton Woods System was in operation that led to a large number of countries fixing exchange rates to the US dollar, which set the gold price at $35 per ounce. As a result, France lowered gold reserve was increased by trading with the US, which allowed the United State’s economy to lose influence. Eventually with the Vietnam War, the conversion of the dollar to gold caused the Bretton Woods System to break down.
In recent years, many nations still held large reserves of gold as a means of defending currency and hedging to the US dollar. As the value of the US dollar weakened, gold prices grew stronger, staying a primary asset to the economy to most central banks, as well as government bonds and foreign currencies. Today, gold bars and coins are still traded, which has helped some with private wealth and to protect gold’s value, the Washington Agreement on Gold was signed into law by European Central Bankers.
Related posts: