eli5 What was the Gold Standard?
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How do you define what value a currency has?
Money only has value because everyone chooses to agree that money has value, otherwise it would just be fancy paper and pieces of stamped metal.
Ancient coins were made of Gold and Silver because that metal had universal value. So if you had a Romain coin, regardless of whether you were a Roman or not, at least the coin had Gold in it so it had value wherever you were.
But throughout history the amount of actual Gold and Silver in coins was reduced and replaced with metals of lesser value to stretch out the amount of currency, to the point where today coins are made of metal with essentially no value. If it wasn’t for the fact that modern coins were legal currency, the actual metal in them would be effectively worthless.
The Gold Standard refers to the fact that money used to be tied to the value of Gold.
When paper money was first created every dollar that was printed represented an amount of Gold that the treasury held in reserve, at least in theory. That’s why the English Pound Sterling is called that, a British pound once represented the value of 1 pound of sterling silver.
But that hasn’t been true for a very long time.
Modern currencies are Fiat currencies meaning that their value is tied to the economic strength of the nation not gold held in reserve. This was first implemented in the 1970s in the US by the Nixon Administration.
Many hold the belief that if we were to return to the Gold Standard currency would be more stable, we’d have less inflation, Governments couldn’t literally print money to solve problems, and there would be less overall risk in the economy.
But most economists believe that this is total non-sense, the Gold Standard wasn’t really enforced for most of the 20th century since WW1 anyway.
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