Gold Standard

Gold Standard A financial system in which the currency was pegged to the price of gold, so that one currency unit always bought the same amount of gold. Since the amount of gold in supply and demand was relatively constant, currency values were fixed, as were exchange rates. After it had been introduced in the UK in 1821, it was used by most economically advanced countries until the period between the two World Wars. However, a fixed currency does not necessarily reflect the real value of a currency, which is determined by inflation and interest rates. This growing disparity had already put a strain on the Gold Standard before 1914, but with the explosion of government activity during the First World War, as a result of which governments needed to print money very quickly (thus forcing up interest rates and inflation), the Gold Standard collapsed in most European countries. Despite tremendous national debts after the war, efforts were made to reintroduce the Gold Standard, such as in the UK (1925–31) and France (1926–36). However, since government ativity continued to expand, through the provision of social welfare and the active regulation of the economy, the Gold Standard became increasingly untenable. It was abandoned by the USA under President Roosevelt in 1933.

Bretton Woods; ERM; euro