By P.Hu from the HAN university in the Netherlands The gold standard By P.Hu from the HAN university in the Netherlands

INDEX What is the gold standard? History of the gold standard Kinds of gold standard Modern history Advantages Disadvantages Failure of the gold standard Summary After the standard

What is the gold standard? “We have gold because we can not trusts governments” – President Herbert Hoovers to Frank D. Roosevelt.

Monetary system based of gold The value of a currency was based on gold The “exchange rate” was fixed Different kinds of Gold standards

History of the gold standard The primitivist form of the gold standard dates back to 643 before Christ in Lydia. (modern day Turkey) In those times, the country with the most gold was the richest country. This fueled explorations to new land to find gold.

Why gold? Low melting point Relative rare Wont rust or explode Its beautiful

Gold Exchange standard Kinds of gold standard Gold Specie standard Gold Bullion Standard Gold Exchange standard

Specie standard 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. Actual use a gold coin, or a coin with the same value of a gold coin.

Bullion Standard Gold Bullion standard. A gold bullion (bar) is available on demand at fixed price in exchange for circulating currency.

Exchange standard A gold exchange standard is a monetary system where a government guarantees a fixed exchange rate to a foreign currency that uses a gold specie or gold bullion standard. p.s. Note on the right just for visual purposes only. Funfact: 1 Dollar is 35,000,000,000,000,000 Zimbabwean dollars.

Modern history of the gold standard First put into operation in Great Britain in 1821 For the next 50 years bimetallic regime of gold and silver was used outside great Britain, but in the 1870s a monometallic gold standard was adopted by Germany, France and the United states. Other countries followed. This shift occurred because of recent gold discoveries in North America thus made gold more plentiful.

Pros of the gold standard It was an easy system to introduce and operate It provided for a very high level of stability in exchanges rates which promoted international trades and investments It provided a fully secure system for settlement of international transactions Built in self-regulating and stabilizing system. Price for gold was $20.67/oz ($729.112793 / kg)

Cons of the gold standard The cost of manufacturing gold gradually increased to levels beyond the official prices. The resulted in a stoppage of gold production which had adverse effect for the countries liquidity Countries with persistent trade deficit suffered from recessions resulting in reduced investments and unemployment The system had no flexibility to adjust money supply in times of economic crisis such as disasters, war, recession. To avoid the negative effects of reduced money supply, countries would break the equality between gold reserves and money supply, thereby “making” there own rules in the system.

Failure of the gold standard The failure of the gold standard can be tributed by two events in history in combination of the disadvantages of the gold standard.

World war 1 1914-1918

The great depression 1929-1933

Full gold standard Ended in 1937 To avoid adverse balance of payments To prevent gold exports falling into the hands of the enemy

Summary of the gold standard Reign of the full gold standard was short. Only lasting from 1870s till the first World War 1870s By 1928, the gold standard was implemented again although by a different form (exchange vs bullion standard) 1928 Roosevelt nationalizes gold 1933 The gold standard collapsed again during the great depression of 1930s and by 1937 not a single country remained on the full gold standard. 1937 Representatives from the U.S. and 43 other countries meet to normalize commercial and financial relations 1944 The US completely severed the link between the dollar and gold in 1971. 1971 On December 31, President Gerald Ford permits private gold ownership again in the U.S. 1974

Years After the Full gold standard Executive order requiring all gold coins, bullion and certificates to be turned over to the Fed at $20.67 per ounce. Purely fiat monetary system since 1976 Governments now have tools to fight recessions or other disasters because of control of money supply. Currency isn't backed by a physical commodity

Will the gold standard come back?

Short answer. No.

A return to the gold standard in any form is nowhere on anybody’s horizon. Former Federal Reserve Chairman Alan Greenspan, who has consistently supported the idea that gold is money, agrees, telling the Gold Report in 2013.

Questions? Thanks!

Winner gets a bar. A chocolate oreo bar. I have some for you  Winner gets a bar. A chocolate oreo bar.