Under the gold standard, the monetary system lacks elasticity. In this article we will discuss about:- 1. Positive economic development is one of the primary advantages for mining gold in contemporary times. Public Confidence: A necessary condition for the success of gold standard is the availability of adequate gold stocks and their proper distribution among the member countries. This requires that whatever non-gold money (paper money or coins or demand deposits) may be in circulation, gold reserves in some fixed proportion must be kept. 6. But the gold gaining country, on the other hand, may not increase its money supply in proportion to the increase in gold reserves. Before publishing your Articles on this site, please read the following pages: 1. (iv) There is unlimited coinage of gold at no cost. Define divisible profits and explain the main prin... Write a note on the following, 1. This was not proper and easily manageable. There were three main reasons for the excessive movement of capital between countries: (a) After World War I, the victor nations forced Germany to pay war reparation in gold. Moreover, since the amount of cash in the country is limited by the gold reserve held by the central bank and there must be a cash basis for credit creation, the capacity of the banks to create credit is also limited by the gold reserve. It will work provided it is given exclusive devotion.”. Thus, the price system which is founded on relatively stable gold base will be more or less stable than under any other monetary standard. Discuss the advantages and disadvantages of gold standard Ask for details ; Follow Report by Charitarth7499 31.07.2018 Log in to add a comment Disadvantages of Gold Standard Since gold is not divided equally it can lead to imbalances as countries having it as natural resource can exploit countries that have less gold reserves. Excessive Use of Gold Exchange Standard: The excessive use of gold exchange standard was also responsible for the break-down of gold standard. (c) Still others indicated the adverse external circumstances under which the gold standard had to work. Political instability among the European countries also was responsible for the failure of gold standard. The gold standard failed because the rules of the gold standard game were not observed. Similarly, rise in prices in country B will lead to an expansion of imports in that country. It provided for a very high level of stability in exchange rates which promoted both international investments and trade. One notable benefit of the gold standard is that the limited physical supply of gold helps to restrict a government's ability to inflate the money supply thereby making it difficult for the government to abuse its population with inflation. So money supply is not flexible enough to be changed to meet the changing requirements of the country. Under these conditions, a stable relation exists between the money units of different gold standard countries and free movement of gold helps in maintaining the stability of exchange rates. to. It is also a wasteful standard because there is a great wear and tear of the precious metal when gold coins are actually in circulation. Absence of International Monetary Centre: Movement of gold involves cost. Gold standard ensures internal price stability. Demerits 7. © Blogger template This function is called the domestic aspect of the gold standard since it is concerned with stabilising the internal value of the currency. TOS4. Rules 5. (a) To avoid adverse balance of payments and. Thus, note issue is fully backed by gold reserves and the growth of fiduciary note issue (without gold backing) is checked. The automatic working of the gold standard requires the mutual cooperation of the participating countries. Thus, the gold standard, which necessarily produces deflation in the gold losing country, may not generate inflation in gold receiving country. The successful working of gold standard requires free and uninterrupted trade of goods between the countries. Gold Has Got Your Back. After the World War I, a wave of economic nationalism swept him European countries. Under gold standard, every member country fixes the value of its currency in terms of certain weight of gold given purity. Gold standard promotes public confidence because- (a) gold is universally desired because of its intrinsic value, (b) all kinds of no-gold money, (paper money, token coins, etc.) Standard deviation is rigidly defined measure and its value is always fixed. Standard deviation is based on all the items in the series. 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