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Gold Standard | A Standard Measurement of Money

gold ingots precious metals
Gold, the foundation of the gold standard. Photo by Sveriges Riksbank.

In the past, the amount of money produced for circulation was based on the actual gold reserves of a government or bank.  Under this system, referred to as the gold standard, money was issued with the guarantee that it could be redeemed for a fixed amount of gold. Although the gold standard is no longer internationally accepted, when it was practiced, the currencies of different countries had a constant rate of exchange between each other.  

 

gold on the new york stock exchange
Trading of gold became part of the New York Stock Exchange in 1865.

The purpose of the gold standard was to prevent the inflationary expansion of the supply of currency and to create faith in the stability of the monetary system.  Although it was practically a religion in the 19th and 20th centuries, economists no longer consider the gold standard desirable. Although gold no longer dominates world finance as it did when it was the standard of measurement of money, gold bullion is still stored in banks and it is often used in payments made by one country to another.

 

Next, learn about the story of the Golden Fleece | Gold in History and Culture.

 

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