Eli5 was gold prices fixed during gold standard ?


Were the prices fixed or countries could change it

In: 1

Yes – sort of.

Having the price of gold fixed is what the gold standard is – one unit of currency is equal to and backed by one unit of gold. For example, gold was fixed at $20.67 per ounce until 1933 – that was the price of gold. Assuming that you could redeem currency for gold, the price would stay fixed at that – no buyer would buy for more than that (since that was the price the government would charge) and no seller would sell for less than that (for the same reason).

Of course, real economies rarely work so cleanly. Usually you _couldn’t_ freely transact gold with the government (at least in quantities that would matter) so whatever price gold was fixed at was somewhat meaningless as the government wouldn’t actually give you that price. This meant that the true market price of gold would fluctuate.

The price of gold was not fixed, only the exchange rate from a certain currency to gold. This meant that if there were any shocks to gold prices caused by an increase in demand or a change in supply, national currencies would lurch one way or another in value, which was not great for an economy.

There’s a reason we got rid of the gold standard.