Advantages and Disadvantages of Gold Standard

Gold standard refers to a system of maintaining gold reserves by countries central bank in order to maintain the exchange rates and also government have to stock more gold before issuing fresh currency into the country financial markets. This system is not followed presently, however in view of recent economic events like housing bubble, euro crisis, violent exchange rate volatility many people are advocating the use of gold standard. Given below are some of the advantages and disadvantages of gold standard –

Advantages of Gold Standard

  1. This system put brakes on government ability to print unlimited amount of money, and we all have seen how from past few years central banks like fed and ECB have been throwing money in the markets in order to save their economies but have been unsuccessful and biggest side effect of these policies have been inflation and speculation leading to more harm than benefits for the people of this globe.
  2. Extreme volatility in currency is not desired by any country and in the past currencies used to move 1 or 2 per cent during a month but in the past few months’ currencies of many countries have been moving 1 to 2 per cent in intraday trade and exchange rate fluctuation of this magnitude can lead to huge losses for companies and ultimately people will suffer due to it.
  3. Current monetary system increases inefficiency and wasteful expenditure by the governments because they know that they can print money whenever they want in order to reduce their fiscal deficit which is not possible under gold standard system.

 Disadvantages of Gold Standard

  1. 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.
  2. Sometimes money supply is needed to push the economic activity as money can be force multiplier for economic growth which is not possible under this system.
  3. This system ties the hands of central banks and governments to tackle any economic catastrophe and therefore whenever such things happen it can lead to complete collapse of the world exchange system.
  4. The argument that it does not lead to inflation may not hold true in case of supply side inflation when there is general reduction in production of goods and services and also when there is natural calamity like famine, floods, tsunami etc…, leading to drop in production of agriculture production which increases the price of essential commodities leading to inflation.

Apart from above there are many other factors which have to be looked upon before deciding whether to switch to gold standard from current exchange system or not as one see there are both benefits and limitations of using gold standard system.

0 comments… add one

Leave a Comment


Related pages


what does perpetual succession meandifference between cheque and draftfictitious assetsskimming policydefinition of profitability ratiopraveen kumar meaningveblen goodsadvantages and disadvantages of competitive advantagepassed adjusting journal entrydisadvantages of organizational chartaccounting for sales returnsdifference between tariff and quotadisadvantages of command economyadvantages of a takeovertariff vs quotaadvantages and disadvantages of deforestationwhat is autocratic leaderdifference between implicit cost and opportunity costdefinition of unqualified audit opiniondisadvantage of sales promotiondifference between freight and cartagefull form csrvertical analysis of balance sheetadvantages and disadvantages of gold standarddisadvantage of autocratic leadershipwhat is the meaning of current liabilitiescurrency cross rate formulapricing strategies advantages and disadvantagesmeaning of pros and cons in hindiconglomerate acquisitiondisadvantages of social media marketinghow to calculate creditors turnover ratiowhat is substitution effect and income effectdirect quote and indirect quote foreign exchangeunsystematic meaningpenetration and skimming pricingadvantages and disadvantages of international trademarket penetration pricing definitionwhat is crr and slr in bankingaccounts receivable and unearned revenuepersonal real nominal accounts rulespublic goods pptadvantages and disadvantages of invoice discountingcash flow statement in hindilearn bank reconciliation statementpromissory note bill of exchangedrawbacks of ratio analysisadvantages of market penetration strategywhat is slr and crrdifference between drawer and drawee bankadvantages and disadvantages of international tradevertical mergerconglomerate mergerswhat are complement goodsmerits and demerits of globalization wikipediaskimming pricing definitionexamples of direct taxdefine unitary elasticconglomerate mergers examplesadvantages and disadvantages of marginal costingdisadvantages of globalizationconsigner meaningautocratic leader characteristicssystematic risk vs unsystematicwhat is marketing skimmingdifferent elasticities of demanddefinition of inferior goodswhat is the meaning of demand draftfloat definition financewhat is mixed economy in economicseffect of advertisement on monopolistic competitionadvantages and disadvantages of owners capitalformula for profitability ratiodifference between debentures and sharesadvantage of autocratic leadershipwhat is the difference between crr and slradvantages and disadvantages of working capitalmonopolistic competitionsdefinition of a traditional economy