GOLD STAN­DARD

HT Ludhiana Live - - City/sports -

The gold stan­dard was a sys­tem un­der which nearly all coun­tries fixed the value of their cur­ren­cies in terms of a spec­i­fied amount of gold. With the ex­cep­tion of the US, most coun­tries left the gold stan­dard, ei­ther legally or in prac­tice, dur­ing or im­me­di­ately af­ter World War I. With the gold stan­dard pre­vent­ing mone­tary au­thor­i­ties from ex­pand­ing money sup­ply rapidly enough to re­vive eco­nomic ac­tiv­ity, the world’s lead­ers met at Bret­ton Woods, New Hamp­shire, in 1944 to cre­ate a new in­ter­na­tional mone­tary sys­tem. It was then de­cided to tie the world cur­ren­cies to the dol­lar, which, in turn, they agreed should be con­vert­ible into gold at $35/ troy ounce. As the US ac­counted for more than half of the world’s man­u­fac­tur­ing ca­pac­ity and owned most of the world’s gold, cur­ren­cies were tied to the dol­lar. Over time, how­ever, the fixed price be­came un­re­al­is­tic, be­cause of in­fla­tion and due to ris­ing de­mand for gold as jew­ellery and in­vest­ment. The US Pres­i­dent Richard Nixon sus­pended the fixed con­vert­ibil­ity be­tween gold and the dol­lar in 1971.

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