From my understanding, remove from the gold standard just allows government to arbitrarily make up the value of the now fiat currency, which is why we now struggle with inflation and soaring debt.
It seems obvious that you’d want your dollar to theoretically be fixed to another medium with a readily appraisable value simply to maintain stability and prevent government corruption through manipulation of the monetary supply.
But then again, I’m no economist.
In: Economics
Getting off the gold standard was not simply “good”. It had trade offs, just as the US Dollar being the global reserve currency has benefits and drawbacks for the USA today.
The big advantage of the gold standard is that it facilitates trade. No one has to worry about the value of the currency they’re trading with if they know it can be converted into a set amount of gold. So a currency on the gold standard improves confidence in trade. For about 200 years until 1917 the UK was on the gold standard and so its Pound Sterling became the global reserve currency. This was of benefit to the UK as people wanting to trade anywhere in the world more-or-less needed to have pound sterling, which to get they had to sell things to the UK. This enabled the UK to invest across the world and help enrich its asset-holding class. Other countries who were also on the gold standard had to control their policies in a way which also maintained it, which stopped a lot of otherwise radical measures.
The downside of the gold standard is that you cannot control your own money supply for domestic purposes. Because you if print too much money, inflation will happen, and suddenly your currency isn’t worth what it’s meant to be in gold and your gold standard collapses.
Controlling your money supply for domestic purposes has advantages as you can expand spending in lean times and devalue your own currency to stimulate exports, which benefits your workers.
So essentially, gold standard is good for trade, and good for the assest holding class, but bad for workers.
In the midst of WW1, the UK was spending so much that it could not maintain the gold standard and came off it. After the war was won, it wanted to return to the gold standard to uphold the Pound Sterling’s position as global reserve currency. But to do this it had to cut domestic spending – because it had to limit the number of pounds to the amount of gold it could be trusted to back it with. Eventually it rejoined the gold standard in 1925. However, reducing public spending affected people. Especially workers. This lead to hardship in the UK and the first and only general strike in 1926. In 1918 the UK had extended the vote to basically all men, and women over the age of 30. Giving all the workers the vote pushed the political balance in favour in the workers instead of the asset holding class and the pro-worker Labour party did better and better in elections. As a result in 1931 the UK left the gold standard forever.
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