This paper will play a meaningful role to many audiences, such as economic scholars, the government, and businesses. Presently, the population marks 12% of the entire American population (Bazot et al 43). These people have a great interest to understand three important aspects. First, it will spell out the financial history of the gold standard in America and beyond. Second, it will explain the reason why its removal from the gold was terrible to the economic progress of the nation. Finally, it will postulate the future position of the issue and its possible impacts to the progress of the economy. Gold standard is a scenario where the value of a national currency is linked to a specific amount of gold. During this period, banks are allowed to hold rights to the reserves of the gold until the business transaction is complete. In most cases, the monetary gold stock is determined by the amount of domestic production and international transactions (Mitchener 3). This trend in turn may have a high level of negative ripple effect to the promotion of the economy.
Gold standard has presented a number of significant problems to the economic progress of America and the global community. First, the gold standard had fixed the dollar price on gold rather than on the price of goods. This trend, in turn, meant that any form of fluctuation in the price of goods meant a decline in the market price of gold. Secondly, the gold standard destabilizes the exchange rates within the global markets. It will spell out the positivity of the gold standard and illuminate the possible sears created throughout history. Finally, it was the number one cause of the spread of the great depression in America and beyond economy.
While explaining the concept of the gold standard in his article, “50 years after Nixon ended the Gold Standard,” Nixon postulated that it was a scenario where the value of a national currency is linked to a specific amount of gold (Forsyth 8). During this period, banks are allowed to hold rights to the reserves of the gold until the business transaction is complete. In most cases, the monetary gold stock is determined by the amount of domestic production and international transactions (Mitchener 3). As one of the nations, America had kept reserves of gold in their faults that were equal to the fraction of money they had issued. Historical records indicate that most people adopted the idea and accepted to carry out their business transactions using gold (Forsyth 13).
The great depression hit the nation, thus resulting in hoarding the product instead of depositing it in the banks. Consequently, most nations across the globe ran out of supply, thus forcing them off the gold standard (Forsyth 15). America came off the gold standard in 1933 and converted to the dollar in 1971 (Forsyth 10). The closure of the use of the gold as a standard led to subsequent adverse effects on the economic progress of America and the global markets.
Consistent with the situation in America global community has continued to experience a high inflation rate and stagnation in economic growth during the gold standard. During that period, the dollar was financially unstable as the gold reserves dictated the better part of its function. The trend, in turn, led to uncertainty and instability in product prices across the nation. According to one of the studies conducted by Forsyth, it was discovered that the inflation rate during the period was almost twice as compared to the Bretton Wood system of 1973. The above trend indicates that the gold standard was not one of the best moves for the progress of America.
Secondly, the gold standard was the number one factor that led to the spread of the great depression in America and beyond. These scholars believe that the gold standard was a global arrangement that formed the basis for a virtually universal fixed exchange rate regime where international business transactions were settled in gold (Forsyth 10). That means nations whose imports exceeded the exports were expected to pay in gold. The loss of gold made most of these nations’ central banks shrink their balance sheet, thus reducing the quantity of money they had in reserves. In other words, nations that experienced external deficits faced high deflationary measures. This trend led to the start and spread of the great depression, especially in third-world nations.
Gold standard was one of the interfered with the economic progress of the global business community. President Nixon accepted the gold standard as a significant source of insecurity in the business sector (Newman 2). According to the president, the idea did not provide a fixed exchange rate system (Forsyth 10). Private investors, merchants, and landowners across the national divides felt that the approach failed to take care of the external shock waves experienced by significant business cases. The consequence of the economic meltdown was relatively high and hence could not be supported by the new approach (Newman 2). In most cases, the central bank took the opportunity to increase the price of the dollar, thus disadvantaging the external markets. This trend typically happened in 1931 to the Bank of England when they abolished the system (Forsyth 10). Britain was forced to abandon the fixed exchange rate and operate in an ideal situation that would promote the stability of its operations. During that era, most merchants felt very unsafe as they worked to reduce the risks associated with varied business exchanges and the political tension in the nation.
Nevertheless, despite the harmful effects of the gold standard, proponents believe it was a powerful tool for promoting the superiority of the superpower nations. Scholars who subscribe to American supremacy noted that the idea was a powerful tool that would have left other nations to depend on the nation. They accept that America would enjoy better monetary standards and systems due to its stable currency (Bazot et al 43). As a result, they have continued to plead with the subsequent governments to re-introduce the idea to help make America a superpower nation. Nepenthes’ idea has been refuted by several scholarly researchers who term the move as an orthodox way of achieving economic prosperity in America and beyond.
Based on the presented ideas, it is clear that inflation, financial instability and the great depression were rising under the idea of gold standard. Therefore, removing the dollar from gold was a mature idea with many benefits. The idea resulted in stunted economic progress. It plunged the nation on the great depression and its eminent effects. Further, it was a decisive move that destabilized the nation into inflation and other poor financial decisions. If the situation could have been left, the effects could have continued to spread to the entire world. In short, the maintenance of the system would have been a colossal mistake for America and the global community.
Works Cited
Bazot, Guillaume, Eric Monnet, and Matthias Morys. “The flexibility of the classical gold standard (the 1870s–1914): Any lessons for the eurozone?.” The Economics of Monetary Unions. Routledge, 2020. 17-30. Web.
Forsyth, Randall W. “50 Years After Nixon Ended the Gold Standard, Dollar’s Dominance Faces Threat.” Barron’s, 2021. 1–35. Web.
Mitchener, Kris James, and Gonçalo Alves Pina. Causal Effects of Countercyclical Interest Rates: Evidence from the Classical Gold Standard. No. w29970. National Bureau of Economic Research, 2022. 3-45. Web.
Newman, Jonathan. “How Nixon and FDR Used “Crises” to Destroy the Dollar’s Links to Gold.” Mises Institute, Web.