The end of the gold standard
October 27, 2011 91 view(s)
From about 1880 to 1913, most countries adhered to gold as the standard backing currency. This period, known as the classic gold standard, was a period of unprecedented economic growth, according to the Library of Economics and Liberty. It wasn't until 1944 that, with the Bretton Woods system, an international basis for exchanging currencies was established. This led to the International Monetary Fund (IMF) and what is now known as the World Bank. The new system was essentially the anti-gold standard, according to British economist John Maynard Keynes. The system, which was established in Bretton Woods, New Hampshire, largely benefited the U.S. dollar and economy. As an attempt to free international trade and reconstruct after World War II, the 44 member states agreed to fix their exchanges rates with the U.S. dollar under the assurance that it would be tied to gold. For every USD $1, there was 35 oz. of bullion. In 1971, Richard Nixon cut the tie between gold and the U.S. dollar to prevent a run on Fort Knox, thus ending the Bretton Woods system. Other major world economies consequently allowed their currencies to float freely against the U.S. dollar. Stock market plummets, high oil prices and inflation resulted from this major economic change. The international monetary system today has no anchor in gold or any other metal and is made up of a variety of exchange rates and controls. Today, China's economy is one of the most influential, as it's the largest of the emerging economies, according to the Economist. The international economy would be better-suited to cope with emerging economies and globalism if China would make its currency more flexible.