abhishreshthaa
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Gold Exchange Standard System
Two types
Gold Exchange Standard System
3 Rules
FALL OF GOLD STANDARD SYSTEM
- Oldest system in operation till the beginning of 1st World War (1870-1914)
Two types
- Gold Specie Standard
- Gold Bullion Standard
Gold Exchange Standard System
3 Rules
- Authorities must fix once-for-all the rate of conversion of the paper money issued by them into gold.
- Free flow of gold between countries on gold standard.
- Money supply must be tied to the amount of gold in the reserve.
- If this amount decreases, money supply must contract and vice-versa.
FALL OF GOLD STANDARD SYSTEM
- As an economy strengthened, it would import heavily from abroad until it ran down its gold reserves required to back its money.
- As a result, money supply would shrink, interest rates rose and economic activity slowed to the extent of recession