"In the simplest terms, the gold standard is a monetary system that ties a currency’s value directly with gold. Therefore, the currency can be exchanged for a set amount of gold and is guaranteed by the government". (Gold Standard - A Currency's Value In Gold, n.d.)
In such a monetary system, gold backs the value of paper money.
Often romanticised by those opposed to the modern-day fiat economy, an ‘authentic’ international gold standard only existed for nigh on 44 years - from 1871 to 1914 – following the peaks of the gold rush in an unprecedented time of world peace. However, many a modern-day economist views ‘The gold standard’ as a symptom, rather than the cause of this peace and prosperity.
The first nation to officially adopt a gold standard was England in 1821.
The gold standard came to prominence aided by the dramatic rise in global trade and production, in hand with the large swathes of gold discovered throughout the century, enforcing the gold standards grip on the international economy well into the next century.
Nations settled trade imbalances with gold, giving world governments strong incentive to stockpile their gold reserves for a rainy day. These stockpiles still exist today.
The central banks of America, England and France hoarded vast quantities of the gold flowing from the Californian and Victorian fields, which in turn provided the basis for sound currencies and solid financial systems across the known world, supporting an immense credit expansion that bankrolled world trade, shipping and manufacturing.
Following Germany’s adoption of the standard in 1871, the international gold standard emerged, with the majority of the world’s developed nations participating in trade it by 1900.
From 1871 to 1914, the gold standard was at its pinnacle, but with the outbreak of the Great War in 1914, this all changed forever.
"As the gold supply continued to fall behind the growth of the global economy, the British pound sterling and U.S. dollar became the global reserve currencies. Smaller countries began holding more of these currencies instead of gold. The result was an accentuated consolidation of gold into the hands of a few large nations". (LIOUDIS, 2021)
For more background and FAQ’s on the History of the Gold Standard check out Mark Harrison’s article Did the Gold Standard Work? Economics Before and After Fiat Money
Which address questions such as:
- How is a classical gold standard supposed to work?
- How did it actually work out in the past?
- Why did previous versions of the international reserve currency lose their mantle?
- What is the record of the fiat currency version of the dollar as an international reserve currency?
- And why is it now rather than some other moment that gold is so much discussed?
(Mark Harrison, Did the Gold Standard Work? Economics Before and After Fiat Money, 2013)
@kieran.wicks #question from @kieran.wicks #GoldRushStories #AustralianHistory #VoicesofFederation #HistoryofMoney #GolsStandard #GoldFever #Currency #FYP #Fiat ♬ original sound - Kieran.Wicks
US Gold Certificate 1922
Gold certificates, used as paper currency in the United States from 1882 to 1933, were freely convertible into gold coins
Weighing ingots on the Chancellor Balance at the Royal Mint, Tower Hill, London, UK in the early 20th century
A shipment of Californian gold arriving at the Bank in 1849
Gold miners pose at their mine with the Clerk of Petty Sessions, L.S. Donaldson and the flag indicating a strike, Gulgong area
Panoramic view of the Royal Mint and Hyde Park Barracks taken from the steeple of St. James's Church, 1871
Gold nuggets from the Star of Hope mine, with B.O. Holtermann on left and Louis Beyers on right of doorway, Hill End, New South Wales, ca.1872.
Men at gold mine whim, Trunkey, New South Wales, ca. 1873
The clipper Cape Clear, Dawes Point, Sydney, ca. 1873
1872, Four people sitting on a dock, looking towards ships in the harbour and Millers Point, Sydney, ca. 1875
1872, Three masted ship at the wharf alongside of the King's Head Hotel at the Rocks, Sydney, ca. 1875