2.4 The Gold Standard
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| Gold Standard |
A
State would be following the gold standard if it used gold currency in its
foreign and domestic transactions, or if it used domestically a paper money
which could be exchanged for gold. This paper money could either be for
domestic use and for making payments abroad or solely for making payments
abroad, on condition that this exchange for has a fixed price. In other words,
it would still be following the gold standard on condition that the paper unit
can be exchanged for a specific quantity of gold, at a fixed price and
vice-versa. It would be natural in this case for the value of the currency in
the country to remain solidly linked to the value of gold. Therefore, if the
value of gold rose in comparison with other commodities, the value of the
currency in comparison with other commodities would rise as well. If the value
of goods decreased in comparison with commodities, the value of the currency
would also decrease.
Money
based on gold has a special characteristic, reflected in the fact that the
monetary unit is linked to gold in a specific amount. In other words it would,
by law, consist of a specific weight of gold. The import and export of gold
would be freely conducted, and people would be able to freely acquire
currencies, gold bullion, or gold dust and be able to export them.
Since
gold in this instance would move freely between various countries, every person
has the choice of either buying foreign currency, or transferring (i.e.
settling in) gold; a person would however opt for the cheaper method.
Therefore, since gold and the cost of its transfer would cost more than the
price of the foreign currencies in the market, it would then be sensible to use
foreign currency instead. However, if the exchange rate exceed that figure, it
would be best to take the gold out of circulation and settle with it.
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