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Does the US still use the gold standard? The simple answer is no. But what are the issues with the gold standard? And perhaps even more importantly, what were the advantages and disadvantages of the former monetary system used by the United States? The jewelry experts at Goldfellow tackle the task of answering these questions with this breakdown of the pros and cons of using the gold standard when valuing currency for a country.
What Are the Benefits of the Gold Standard?
Is money printed based on gold really that bad? Some say no! The main reason the gold standard is defended to this day can be narrowed down to exchange rate stability and inflation stability as well. Exchange rates in today’s economy are all over the place, from one country to another currency could either be worth more or less; one dollar in the United States is worth a lot more when it is being used in Venezuela for example simply because there are fewer US dollars than Venezuelan pesos. With the gold standard, there was a fixed reference point for how much currency would be worth, your dollar would not be worth more or less than it's worth since it was tied to a certain amount of gold.
International exchange rate stability was a great reason to maintain the gold standard, but what’s wrong with the gold standard seems to outweigh the international benefits of the system.
What Are the Disadvantages of Gold Standard Based Currency?
Why was the gold standard abandoned? It was very unfair to other countries without high amounts of gold deposits, and gold production was tied directly to the ability of a government to print money.
When a country doesn’t have as much gold as another, it simply cannot make money if it uses the gold standard. That means that in times of economic crisis where more money needs to get printed to make the proper financial adjustments, some countries simply can’t. Combine this with the fact that private mining could greatly change the worth of an entire country’s financial ability and stability, and it becomes more clear as to what drove the US off the gold standard and why the gold standard doesn’t work in the eyes of many. What’s wrong with the gold standard is that governments had little control over their money supply and hence, were sometimes being put into crises that they could have otherwise avoided.
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