What is a gold standard?
Before attempting to define the Gold Standard, it would be probably more important to look at the circumstances and conditions that led to and enhanced this kind of monetary system. As trade became clear for nations, within and outside national economies, there was need for a standard monetary system to govern exchange. The gold standard is one of these systems, in which gold was used as a backing for money in circulation. In the gold standard system, money that is printed reflects the gold reserve of the country’s central bank. Of course, there could be other backing like silver, but gold was adopted for the superior characteristics it has over the others (Flandreau & Eichengreen 80).
A country or an economy would be said to exhibit a full gold standard system if the currency it has in circulation can be backed completely by gold reserve. The system suffered greatly during and after political instabilities like the world wars (Einaudi 72). Though gold standard monetary system may be a good system for international trade and monetary exchange, the system cannot help during recession or depression since the monetary policies required to stabilize the economy in such conditions cannot work (Burdon 98).
Does a gold standard exist in the U.S. today?
The US does not use the gold standard monetary system today. As indicated above, the gold standard suffered massively because of the financial demands of the world wars and any other major war. These constraints made the major countries involved in the wars to suspend the system in order to fund the war. In addition to the demands of the war, economic depressions like that of 1932 made the US government to suspend the gold standard monetary system so that prices of commodities could be raised and this inflationary measure did not indicate presence of real gold reserve at Fort Knox or Federal Reserve (Burdon 120).
Burdon, Michael. “The gold standard and related regimes: collected essays.” Cambridge, MA: Cambridge University Press, 1999.
Flandreau, Marc & Eichengreen, Barry. “The gold standard in theory and history.” London: Routledge Publications, 1997.
Einaudi, Luca. “Money and politics: European monetary unification and the international gold standard (1865-1873).” Oxford: Oxford University Press, 2001.