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