The Gold Standard was a monetary system in which the participating countries made a commitment to make gold their currency. It was the most famous monetary system in history, but is no longer in use.

The era of the gold standard merely started from England, in 1790s due to a shortage of silver, which compelled them to use Gold coins instead of silver. Later on, the Bank Charter Act in’44, made gold as the legal standard of selling, and buying currencies.

On the other hand, America was using both metals as a legal standard, but after the Fourth Coinage Act passed in’73, all countries adopted the gold standard. France, Italy, and Germany also followed the gold standard, and the time of’80 to’14 is said to be the peak of gold standard era. Through out the world, huge economic growth was observed during this period.

The gold standard boomed up the economy of the whole world by since it regulated the demand and supply of the currency of any country, and helped keeping the supply steady. The value of the currency of one country over the currency of another country, which is known as the exchange rate was also determined by the gold standard.

All currencies moved together, and the gold standard led to a fixed exchange rate all over. All doubts in economy were removed, and even inflation could be controlled since governments could not float currency in the market to build pressure.

There were also certain disadvantages, which led to the abolishment of the gold standard. The fixed exchange rate system meant that monetary shocks in one country were transmitted to other countries as well. This led to changes in the economy, money supply, and price levels in other countries. While there was long-term stability, prices were sometimes highly unstable in the short run.

Apart from this, to be a part of the monetary system, all participants were required to abide by certain regulations, which were not convenient for all countries. They were bound to change exchange rates as per the fixed rate, and most of them did not follow this. Even unemployment rate was at its peak, and all the countries, which produced gold, had huge demands on them.

The gold standard has no chances of coming back in the monetary system, but still many people believe it will be good for the economy. Although it managed to keep a fixed exchange rate, keep the price levels stable and did not give central banks the control of financial strategy, this system still had its drawbacks.

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