Gold standard

A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was widely used in the 19th and early part of the 20th century. Most nations abandoned the gold standard as the basis of their monetary systems at some point in the 20th century, although many still hold substantial gold reserves. In a 2012 survey of leading economists, they unanimously opined that a return to the gold standard would not benefit the average American. The gold standard was originally implemented as a gold specie standard, by the circulation of gold coins. The monetary unit is associated with the value of circulating gold coins, or the monetary unit has the value of a certain circulating gold coin, but other coins may be made of less valuable metal. With the invention and spread in use of paper money, gold coins were eventually supplanted by banknotes, creating the gold bullion standard, a system in which gold coins do not circulate, but the authorities agree to sell gold bullion on demand at a fixed price in exchange for the circulating currency. Lastly, countries may implement a gold exchange standard, where the government guarantees a fixed exchange rate, not to a specified amount of gold, but rather to the currency of another country that uses a gold standard. This creates a de facto gold standard, where the value of the means of exchange has a fixed external value in terms of gold that is independent of the inherent value of the means of exchange itself. The gold specie standard arose from the widespread acceptance of gold as currency. Various commodities have been used as money; typically, the one that loses the least value over time becomes the accepted form. Chemically, gold is of all major metals the one most resistant to corrosion. The use of gold as money began thousands of years ago in Asia Minor. During the early and high Middle Ages, the Byzantine gold solidus, commonly known as the bezant, was used widely throughout Europe and the Mediterranean. However, as the Byzantine Empire's economic influence declined, so too did the use of the bezant. In its place, European territories chose silver as their currency over gold, leading to the development of silver standards. Silver pennies based on the Roman denarius became the staple coin of Mercia in Great Britain around the time of King Offa, circa 757–796 CE. Similar coins, including Italian denari, French deniers, and Spanish dineros, circulated in Europe. Spanish explorers discovered silver deposits in Mexico in 1522 and at Potosí in Bolivia in 1545. International trade came to depend on coins such as the Spanish dollar, the Maria Theresa thaler, and, later, the United States trade dollar. In modern times, the British West Indies was one of the first regions to adopt a gold specie standard. Following Queen Anne's proclamation of 1704, the British West Indies gold standard was a de facto gold standard based on the Spanish gold doubloon. In 1717, Sir Isaac Newton, the master of the Royal Mint, established a new mint ratio between silver and gold that had the effect of driving silver out of circulation and putting Britain on a gold standard.