The gold standard is referred to as the system of monetary whereby the currency per unit is utilized based on a fixed quantity or how much the gold weighs. Based on this particular system, all kinds of currency, whether it is a bank note or deposit, can be transformed into gold based on a price that is already fixed.
Today you can find 3 different forms of gold standard. These three standards have been utilized for many centuries in the past and particularly the trend started during the 1700s. They are known as the gold specie, exchange and bullion standards. Below you may find further explanation about them and a bit of their history.
The first type of gold standard is called the gold specie. In gold specie, its monetary unit is connected with the gold coins which are currently being circulated. In other words, the unit of currency has a link with the unit value of a particular circulated gold coin or secondary coinage. Secondary coinage is a coin that is produced from metal which is less valuable than gold. In the past, gold standard (specie) was found being used in the empires of medieval. For instance, the Byzant gold specie standard was used by the Eastern Romans. In modern era, the British West Indies were known to be the first using the gold specie standard. In the U.S., their gold specie is the American Eagle.
The second type of gold standard is known as the gold exchange standard. This type of gold standard may only involve minted coins that are circulated with a lesser value like silver. There will be a fixed rate being imposed when the coin is exchanged with other countries. Before the twentieth century arrived, many countries which have been using silver standard instead of gold began to shift their currency units to gold based on the U.S. or U.K currency. Mexico is one of the countries that changed their silver coins to a value of $0.50 per unit.
The third type of gold standard is the gold bullion. Gold bullion is often traded when there is demand and its price is fixed. Gold bullion was first created in 1925 in U.K. when the gold specie became void. However, in 1931 the production of gold bullion was stopped due to the excess amount of gold flowing out of the country.
Among the benefits of the gold standard is that inflation can be curbed due to the limitation of the government’s intervention. The case is different with paper currency because with the government’s interference inflation can occur when there is excess of bank notes floating out of the country.
Different types of gold standards may create some negative impacts as well. For example, gold standard can cause the policy of currency become void in the attempt to stabilize the economic condition of a country especially when there is a financial downturn.