The Classical Gold Standard

Abstract

AbstractThe first international monetary system with a clearly defined structure and “rules of the game” was the gold standard. This monetary system lasted from 1871 until 1914. The gold standard was based on a commodity money, gold, to which the adhering countries undertook to keep their currency convertible. This implied that, at least in the long run, governments would have to expand the quantity of money according to the growth of gold reserves. Prior to 1871, most advanced countries based their money on a bi-metallic system, which required a fixed parity between gold and silver. Various hypotheses have been made about the transition from bi-metallism to gold mono-metallism. This transition was associated with the process of state capacity building by advanced countries, taking on the role of guarantor of the stability of the new form of money, i.e. bank money, was part of this process.