How was gold used as currency globally?
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Silver and gold have always been treated as very valuable. They are relatively rare and can be easily shaped in coins. Therefore, silver and gold coins have been used a lot, especially when banknotes were not very popular (the printing press was invented in the 15th century and making paper hard to forge is not that trivial).
The first use of gold as currency was pretty straightforward. Coins were made of gold, which means gold was the ultimate currency unit. The reasoning was simple: 1 pound equals X grams of gold -> coins are either multiple or divisors of 1 pound -> all prices, salaries,… are effectively computed in grams of gold, just with a nicer measurement unit.
Eventually, gold became a scarce resources, and central bank started to print banknotes ensuring the possibility to convert banknotes into gold. This was especially useful in international payments. You took your banknotes, the central bank converted them into some gold and you could use that gold to pay someone in another country. Some central banks gave you actual gold bullions or bars, others converted banknotes into gold coins from another country.
The two world wars put a dent on the gold standard. The sudden inflation due to war was not sustainable by gold currencies, and rapid technological change did the rest. European countries were more impacted than America (because of the war), so the US ended up being the only major country with a currency backed by gold.
In 1944, the Bretton Woods agreement introduced a gold exchange standard based on the USD only for international payments. Domestically, as an American citizen, you couldn’t get gold in exchange for your banknotes, but
1) the USD-gold rate was fixed,
2) other currencies were based on the USD with a fixed exchange rate, and foreign central banks could exchange dollars with gold.
Eventually, this system too, failed for several reasons.
First of all, tying your currency to the USD means you rely on the economic policies and stability of the US. Which, in itself, is not so bad for the US, but other countries don’t really like this. France eventually reduced its dependency on the USD by converting a lot of dollar reserves to gold.
Another problem is, huge expenses cannot be sustained if your currency is tied to gold with a fixed rate, because gold is not infinite… and of course things are even worse if other countries won’t give you gold because they use gold to reduce their reliance on the USD. This is similar to what happened during WW1 and WW2… and, in fact, happened during another war: the Vietnam war.
All these issues led Nixon to stop the Bretton Woods agreement in 1971. Initially, this was thought to be a temporary measure, but it stuck and, in 1976, the US, the last country with a gold-backed currency, formally removed references to gold from its laws on currency.
People with a bunch of cool stuff decided they wanted a bunch of gold, when other people found out, they found it was a relatively convenient thing to carry around because you could trade a little gold to anyone interested in it for a lot of other stuff, it was easy to work with and break apart, and didn’t tarnish or go bad.
The demand for gold was consistently high enough that even if you didn’t want gold personally you probably knew someone you could trade it to for what you wanted, and as people used it more, it became established roughly what an amount of gold could get you, making it easier to figure out how fair any given trade was.
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