WI: Countries still on the gold standard?

What if most countries were still on the gold standard? How would the global economic and financial system be different?

Which gold standard? There are different types. For example, one version is where gold coins are circulated such as the gold sovereign; that puts a valuable asset into people's hands and tends to prevent governments from just "inventing" lots of money and so was abandoned in WW1. A government could only debase the currency by reducing the amount of gold in the coins.

Another version has the government tie its currency to the value of gold (perhaps via an intermediate currency such as the US dollar). The coins circulated do not contain anything valuable. That allowed currencies to be debased just by ordering a change in the amount of gold that the currency would buy. Even that system was abandoned in the 1970s.
 
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It would be very difficult to do and almost certainly involve a gold-backed currency rather that specie in circulation. Consider

- the rate of economic growth in the postwar world, especially during the takeoff phases (Western Europe and North America 1950-1970, Southeast Asia 1970+, Eastern Europe and China 1990-ongoing) were much faster than the increase in gold reserves. If you do not regularly devalue, you are creating a currency shortage. That is consistent with the function of money as a store of value, but it plays havoc with it functioning as a means of universal exchange. Basically, it's a deflationary machine, with all the problems that brings.
Of course if you regularly devalue, what's makiong the gold standard different from having a strong currency? The Swiss defended a gold standard of that kind into the 1970s, and I don't think the SFR was that different from DEM, economically speaking.

- the promise of gold redemption makes the currency strong by default even if the rate is regularly adjusted. That suits some economies (especially if you have access to global resources at an 'empire premium'), but not others. You've lost the tool of devaluation. I don't think it would have mattered very much to an economy like Sweden's or West Germany's (after 1960), but Italy would have been buggered.

- especially small economies become politically vulnerable to gold price shocks. THat would have been more of a concern in the days of industrial policy and third-wayism than today. Imagine the USSR asks you nicely to help them out in some policy or other, and hint at the possibility of not selling a chunk of gold on the global market...

It is hard to see how most economies could sustain it once someone demonstrates the advantages of going off the standard. It would be like Greece, only more so: a constraint on public policy that favours the owners of currency over everyvbody else's interests.
 
Which gold standard? There are different types. For example, one version is where gold coins are circulated such as the gold sovereign; that puts a valuable asset into people's hands and tends to prevent governments from just "inventing" lots of money and so was abandoned in WW1. A government could only debase the currency by reducing the amount of gold in the coins.

Another version has the government tie its currency to the value of gold (perhaps via an intermediate currency such as the US dollar). The coins circulated do not contain anything valuable. That allowed currencies to be debased just by ordering a change in the amount of gold that the currency would buy. Even that system was abandoned in the 1970s.

I was mostly thinking of the first kind, but if people have anything to say about the second I'm all ears for that as well.
 

WILDGEESE

Gone Fishin'
It would allow countries that used the "Gold Standard" to keep inflation very low over a long period, due to those same countries keeping interest rates high by modern standards to keep their currency at parity with the price of Gold.

The problem with this is that when a financial crisis hits, such as the '29 crash their is no leverage to change interest rates to combat sluggish or negative growth which increases the length and depth of a recession.

This is what happened to many countries in the 30's which forced them, inc the UK to leave the standard so to gain growth by lowering interest rates at the cost of increase in inflation.

Post war, 1945 onward's, a "Gold Standard" style of monatery control was devised under the Bretton Woods Agreement which most nations kept their currency valued to a pre-determined level by a certain level of interest rates.

Again history repeated itself as many countries, inc the UK found that as their economic performance waned and degraded, they then again couldn't keep their currencies with parity to the Bretton Agreements without increasing interest rates beyond what was feasible, without hurting growth, thus they had to devalue their currencies, basically removing themselves from the Agreement.

This happened in the US with a bang in 1971 with the great "Nixon Shock"

Due to a worsening economic performance and public deficit due to the cost of the Vietnam war, the US had to remove itself from the Bretton Agreement and such had large increases in inflation and low growth. A so-called STAGFLATION scenario.

Any country could use a "Gold Standard" but must make sure that they have the economy to back it up.

Even Japan post-war would still be hard pressed to use a "Gold Standard"

Regards filer

Hope this has helped.
 
- the rate of economic growth in the postwar world, especially during the takeoff phases (Western Europe and North America 1950-1970, Southeast Asia 1970+, Eastern Europe and China 1990-ongoing) were much faster than the increase in gold reserves. If you do not regularly devalue, you are creating a currency shortage. That is consistent with the function of money as a store of value, but it plays havoc with it functioning as a means of universal exchange. Basically, it's a deflationary machine, with all the problems that brings.
Of course if you regularly devalue, what's makiong the gold standard different from having a strong currency? The Swiss defended a gold standard of that kind into the 1970s, and I don't think the SFR was that different from DEM, economically speaking.
Okay, so it sounds like neither carlton_bach nor myself is all that crazy about the gold standard, but to answer the original question, sure, as an anachronism, a small prosperous country could probably have remained on the gold standard till the present day. Perhaps Switzerland. Already prosperous, so they don't need a takeoff phase. Relatively stable population. But a modern economy will still grow somewhat each year. You're still going to have more goods and services being bid on a relatively constant amount of currency. So presumably, each unit of currency will buy more goods and services this year than last.

Now, I personally think inflation is necessary oxygen, or at least shall we say a highly helpful oxygen, but hell, I might be mistaken about that.
 
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