1. Why did the gold standard collapse? Is there a case for returning to some type of gold standard? If so, what is it?
The gold standard was a monetary system by which countries established the value of their domestic currency by tying it to a certain amount of gold (Bordo, 2008). Based on this figure, countries established their gold par value, the amount of currency it took to purchase one ounce of gold (Hill, 2014, p. 325). This gold par value allowed countries to easily determine what the value of their currency was compared to the value of foreign currency, creating the first official exchange rate.
This monetary system worked well in the world economy from the 1870s until the beginning of World War I (p. 326). However, during WWI, …show more content…
Not only does the system help achieve balance of trade equilibrium between countries by adjusting inflation and supply and demand of imports and exports between countries (p. 325), but it requires that countries develop financial discipline- a country can only maintain as much currency as they can support in their gold reserves (Waggoner, 2012). Without the ability to print money, there would be better stabilization in inflation rates and the inability to create large deficits, so our national debt would stabilize as well. Despite these benefits, the potential problems with readopting this system in the U.S. are numerous: there is not enough gold currently held to finance our countries $15 million economy, our government would be unable to print money in times of economic crisis, there is not enough gold mined each year to maintain healthy economic growth (Waggoner, …show more content…
326), the International Monetary Fund (IMF) has several roles within the international monetary system, one of which is its lending facilities (p. 327). IMF members are required to make substantial contributions to a community fund; this fund can then be lent out on a short-term basis to nations experiencing significant economic crises caused by balance-of-payments issues that could cause unemployment and domestic recession (p. 327). Their lending policies require governmental reform, while the loaned funds allow the countries to bolster their financial reserves, help to stabilize their currency on the world market, and allow the country to continue buying and paying for imported goods and services; all of these work in conjunction to help the country stabilize their economy and create an environment ripe for strong economic growth (External Relations Department, n.d.). By helping to create the potential for this strong economy environment, countries will subsequently appeal to those organizations interested in foreign direct investment in those areas. This investment would increase cash inflows and create jobs for
The gold standard was a monetary system by which countries established the value of their domestic currency by tying it to a certain amount of gold (Bordo, 2008). Based on this figure, countries established their gold par value, the amount of currency it took to purchase one ounce of gold (Hill, 2014, p. 325). This gold par value allowed countries to easily determine what the value of their currency was compared to the value of foreign currency, creating the first official exchange rate.
This monetary system worked well in the world economy from the 1870s until the beginning of World War I (p. 326). However, during WWI, …show more content…
Not only does the system help achieve balance of trade equilibrium between countries by adjusting inflation and supply and demand of imports and exports between countries (p. 325), but it requires that countries develop financial discipline- a country can only maintain as much currency as they can support in their gold reserves (Waggoner, 2012). Without the ability to print money, there would be better stabilization in inflation rates and the inability to create large deficits, so our national debt would stabilize as well. Despite these benefits, the potential problems with readopting this system in the U.S. are numerous: there is not enough gold currently held to finance our countries $15 million economy, our government would be unable to print money in times of economic crisis, there is not enough gold mined each year to maintain healthy economic growth (Waggoner, …show more content…
326), the International Monetary Fund (IMF) has several roles within the international monetary system, one of which is its lending facilities (p. 327). IMF members are required to make substantial contributions to a community fund; this fund can then be lent out on a short-term basis to nations experiencing significant economic crises caused by balance-of-payments issues that could cause unemployment and domestic recession (p. 327). Their lending policies require governmental reform, while the loaned funds allow the countries to bolster their financial reserves, help to stabilize their currency on the world market, and allow the country to continue buying and paying for imported goods and services; all of these work in conjunction to help the country stabilize their economy and create an environment ripe for strong economic growth (External Relations Department, n.d.). By helping to create the potential for this strong economy environment, countries will subsequently appeal to those organizations interested in foreign direct investment in those areas. This investment would increase cash inflows and create jobs for