Research And Discuss Should We Return To The Gold Standard? (Essay Sample)

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Should we return to the gold standard?
The gold standard system is an economic system in which a fixed amount of gold was used as the standard account unit. Three types of the gold standard system were applied in the past- the gold specie standard, the gold bullion standard, and the gold-exchange standard. The specie standard was the unit associated with the value of the gold coin in circulation, while the bullion standard entails gold coins that would be sold on demand at a fixed rate by the authorities. The gold exchange standard does not involve the circulation of coins. The gold standard was the monetary unit in many countries, but most of them abandoned the system due to some limitations. As part of the prospective economic policy, there were suggestions to use gold as a cure for the weakening dollar, with some economists arguing that allowing the gold standard to preserve its place as the global reserve currency would help deal with the problem of inflation (Bordo and Barry 115).
The gold standard became part of the economy back in 1914 when international payments mechanisms dropped significantly affecting trade, because of the war. Most of the stock markets closed, and a fixed system of paying off bills had to be put in place to curb the fluctuations that resulted. The gold standard was useful for the countries that adopted it, as it reduced the urge to overspend, but soon after the war, the rate of the gold standard was too high, and there was a depression. What resulted were unending unemployment, trade restrictions, and political meltdowns. The gold standard is hence not a solution to the global economy today, as what the standard may set as high for some countries may be too low for others, causing a disparity in the monetary system (Drummond 25). The system is currently not used by any government, and it has been replaced by the fiat money.
The gold system experienced failure because sometimes there were very high demands by countries that needed unlimited supply of ammunition and other war-related equipment in preparation for war. The gold needed for the exchange of the war equipment was in short supply, and this was equivalent to an economy where demand was high, but supply was limited because of constrained capital. This led to a contraction and most countries abandoned the gold system to accommodate their unlimited demand (Hafer 162).
The fiat money system that does not have the gold backing and which is based on paper notes stands a better chance of survival and comes with an advantage. Such a system allows policymakers to focus on economic goals, as opposed to worrying about the balance of payments, based on a gold standard that is fair to some nations a...