What Was The Gold Standard?

The gold standard was a system of currency management under which notes in the national currency of any country adhering to it would be freely convertible into gold at a fixed price. Britain adopted the gold standard in the early nineteenth century and, as the century progressed, most other countries did so too. The period stretching from the latter decades of the nineteenth century to the First World War is regarded as the high watermark of the gold standard in practice. It was characterised by low inflation, high economic growth, and stability of exchange rates between the major economies.

In the First World War, the exigencies of wartime forced many countries to abandon their rigid adherence to the gold standard and the economic difficulties of the inter-war period posed further complications. In the trough of the Great Depression, faced with a dramatic loss of confidence in the pound, Britain, which had been the pillar of the gold standard system, was forced to abandon it in 1931. Most other countries did so too. The United States, however, clung to the gold standard until 1971.

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