The Gold Standard is the monetary system with a fixed price for gold and with gold coin either forming the whole circulation of currency within a country or with notes representing and redeemable in gold has always been known as ‘the gold standard’.
Internationally, completely free import and export of gold was included with all balance-of-payments deficits settled in the metal. The gold standard was supposed to discipline an economy. Gold flowed out of a country in deficit, leaving less for internal circulation, thus controlling prices and making exports more competitive. Equally, a country in surplus imported gold and its economy expanded.
Britain went on to an unofficial gold standard in 1717 when Sir Isaac Newton, then Master of the Mint, established a fixed price of £3.17.10 ½d per standard (22 carat) troy ounce, equal to £4.4.11 ½d per fine ounce. Although silver, which had previously formed the major circulation in the country, was not officially demonetized, it circulated little after that. Britain adopted a formal gold standard in 1821 at the end of the Napoleonic wars, after the introduction of the Sovereign as the main circulating coin.
The rest of Europe, however, remained on a silver standard until the 1870s, when the great flows of gold available from the United States and Australian discoveries made it practical for it to be adopted as the main metal circulating. Germany switched to gold in 1871, Scandinavia in 1874, the Netherlands in 1875, France and Spain in 1876 and Russia in 1893.
The United States remained on a bimetallic system of gold and silver until 1900 when the Gold Standard Act confirmed the supremacy of gold. Eventually fifty-nine countries were on the gold standard, with China on silver as the only main exception.
Its heyday was short. At the onset of World War I in 1914, most countries suspended gold payments, preferring to husband their reserves for essential war needs. Many never returned. Britain went off the gold standard in 1919. Although attempts were made to revive the gold standard during the 1920s, gold coin circulation was limited and many central banks began to keep part of their reserves in key currencies, such as sterling or dollars, which they could still exchange for gold. Thus the gold exchange standard was born.
Britain went on the gold bullion standard in 1926, which had a fixed gold price (still £4.4.11 ½d per troy ounce, as in 1717) but notes were not convertible into gold coin and could be exchanged only for 400 ounce good delivery bars. Britain went off this standard in 1931 and most European countries followed suit in the early 1930s.
The United States went off gold in March 1933, when private holding and export were forbidden. Only the export of gold to recognized central banks and governments was permitted. This created the dollar-gold exchange standard under which dollars could be traded for gold at the Federal Reserve. This system was confirmed by the Bretton Woods Agreement in 1944 and lasted until 1971.
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