Advantage of the Gold Standard

1. Advantage of the Gold Standard • Because there are N currency and N prices of gold in terms of those currencies, no single country occupies a privileged position within the system:

2. each is responsible for pegging its currency’s price in terms of the official international reserve asset, gold. Gold standard rules also require each country to allow unhindered imports and exports of gold across its borders.

3. Benefits and drawbacks of the Gold Standard • Benefits: • Symmetry • Price level and value of national money are more stable and predictable • Enhance international transactions

4. Drawbacks: • Constraints on the use of monetary policy to fight unemployment. • Tying currency values to gold ensures a stable overall price level only if the relative price of gold is stable.→gold discovery in South America

5. 3. An international payments system based on gold is problematic because central banks cannot increase their holdings of international reserves as their economies grow unless there are continual new gold discoveries. 4. The gold standard gives gold-producing countries power to influence the world economy

6. The Gold Exchange Standard • Halfway between the gold standard and a pure reserve currency standard is the gold exchange standard. Central banks’ reserves consist of gold and currencies whose prices in terms of gold are fixed, and each central bank fixes its exchange rate to a currency with a fixed gold price. • More flexibility in the growth of international reserves.

7. Fixed Exchange Rates under currency-circulation system • 纸币流通下的布雷顿森林体系。1944 • Bretton Woods agreement • 英国向美国妥协的结果“双挂钩”体系。 1%幅度波动 各国货币 日元… 里拉… 1盎司=35美元 美元dollar 金块

8. How to sustain the Fixed Rate • 维持固定汇率制的手段： • 动用黄金储备（储备项目） • 利用贴现政策（资本项目） • 施行外汇管制（或签订互换货币协定） • 实行法定贬值（last resort）

9. Dilemma of US dollar 向他国提供美元 美国逆差 收支平衡 保持对美元信心

10. Process of dollar devaluation 1盎司值美元 美元贬值 35 38 脱钩浮动 42.22 1944 1971 1973

11. Abandoned Gold Exchange Standard The post-World War II reserve currency system centered on the dollar was, in fact, originally set up as a gold exchange standard. While foreign central banks did the job of pegging exchange rates, the U.S. Federal Reserve was responsible for holding the dollar price of gold at $35 an ounce.

12. By the mid-1960s, the system operated in practice more like a pure reserve currency system than a gold standard. President Nixon unilaterally severed the dollar’s link to gold in August 1971, shortly before the system of fixed dollar exchange rates was abandoned.