Strengths and weaknesses of the gold standard. Research Paper

Strengths and Weaknesses of the Gold Standard
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Strengths and Weaknesses of the Gold Standard
In the 20th century, gold was accepted as the international monetary standard. As the international unit of account, the gold standard had four features that outline its strengths and weaknesses. The first feature was accepted as the international means of issuing receipts and making payments, in the sense that it was the international unit of account for trade between nations. The second feature was that national currencies were fixed against the value of gold, meaning that gold could be used as a national currency for domestic use at a specific fixed rate. Another feature of the gold standard is that it was an efficient way of forcing surplus adjustment or preventing extreme deficits. Lastly, the gold standard made it possible for central banks in different nations to buy or sell gold at a fixed rate. This paper will examine the features and outline the strength and weaknesses of the gold standard.
It is important to note that during the gold standard, national currencies were fixed on the value of gold in its supply and demand. As a result, both positive and negative effects illustrates the strength and weakness of the gold standard due to varying perceptions. It was during the gold standard era that national currencies were fixed to the value of gold and led to the creation of paper money and coins (Kwarteng, 2014). Hence, banks released domestic currency when the supply of gold increased and banks released less money when the supply of gold decreased. Drawing strengths and weakness from each perspective is possible.
A notable advantage of the gold standard is that fixed assets represented the value of money. Kwarteng (2014) notes that it was possible for governments to regulate and stabilize the economy for it was possible to print as much money as it had in gold. This made it possible for many countries to discourage inflation, which is used to define a country that has too much money to be spent on too few goods (Kwarteng, 2014). Also, the government could not afford debts and budget deficits, which cannot surpass the supply of gold in the country.
Correspondingly, it was in the best interests of the banks to maintain high reserves to meet the demand for gold in a country and avoid shortages. Banks that had vast reserves of gold were preferable because customers who banked gold felt a sense of security. According to O'Connor et al. (2015), saving vast reserves of gold to due scarce supply, flow and high demand for gold resulted in adverse effects that affected banks and their customers. Banks that prioritized in keeping vast reserves made loans and bank lending to become scarce (Pascali, 2017). As a result, there were adverse effects on a nation’s plan for development and growth. Countries that had less domestic currency exchanging hands in their populace experienced lower rates of spending, decreased chances of employment, and decreased amounts of investments made.
Another advantage of the gold standard is that the system rewarded more productive nations. Countries that focused on increasing exports to other nations brought in more gold. With more money in the gold reserves, a nation could...