The Gold Exchange System
Gold trading system
In the 19th century, the international economic gold standard or gold exchange system as a fixed exchange rate system for international trade and investment. The system on the ground, until the outbreak of world war one, establish minimum wage system, is the au metal and fixed assets, can avoid the risks involved in exchange rate, such as the exchange rate fluctuation. In addition, it has a get equilibrating property through it to settle the payment problem.
However, the gold standard system requires countries to follow certain rules. First principles is the nation’s money supply (fill out money) should be connected to the gold reserves monetary authorities to both sides. Besides its monetary authorities should be willing to exchange, gold or gold cash in pre-set in cash to pay a certain ratio. This is the gentiles practices like England, France, Germany, and in the us in the 19th century economy. These countries will their currencies to gold. The result is a stable currency between exchange rate.
Gold exchange rate to help in the international trade and investment. No risk of loss due to exchange rate fluctuations. It also provides an automatic mechanism in keeping the country to maintain the balance of international payments.
Gold begins destroyed exchange system of the first world war. British government banned the bank of England convertible notes gold in 1914. This is because the government needed money ready troops for the war. After the war, the country is in a series of legal tender regulations. The U.S. government has also support the same measures in the post-war period. Germany was devastated after the war, it could not produce Reichsmarks gold. It needs gold for compensation. This country moved to notes decrees. However, after the weimar republic Rentenmark and gold-backed Reichsmark was introduced to gain control of inflation. Although the country back to the gold standard after the war, but it doesn’t do that again. It crashed process, the great depression.
Main shortcoming gold is the exchange system, is a country prosperous and flourishing economy depends on his supply of gold. The man of wisdom nor too important and enterprises. Accordingly, the country without any gold are in rough end. In addition, the system allows countries keep fascinated by their gold rather than through investment development business climate.
The gold standard suffer significant setback. After world war ii in world war ii this be the bretton woods fixed exchange rate system. This system in 1947 start until 1972 and existence. This system is basically comes from the old system actually. It is considered a gold exchange standard. At this rate currencies through the dollar, gold.