Why is money based on gold?

Gold in the form of money Gold does not dissipate into the atmosphere, does not catch fire and does not poison or radiate to the wearer. It is rare enough to make it difficult to overproduce and is malleable for minting coins, bars and bricks. Civilizations have constantly used gold as a valuable material. The gold standard is a monetary system in which paper money can be freely converted into a fixed quantity of gold.

In other words, in such a monetary system, gold supports the value of money. Between 1696 and 1812, the development and formalization of the gold standard began when the introduction of paper money posed some problems. A gold standard is a monetary system in which the standard unit of economic account is based on a fixed amount of gold. The gold standard was the basis of the international monetary system from the 1870s to the early 1920s, and from the late 1920s to 1932, as well as from 1944 to 1971, when the United States unilaterally ended the convertibility of the U.S.

dollar into gold, effectively ending the Bretton Woods system. However, many states have significant gold reserves. The gold standard is a currency measurement system that uses gold as a way to establish the value of money. Ensures that currency under a gold standard system can be exchanged for gold.

The gold standard means an agreement between society and its monetary institutions that the currency they spend and earn is a substitute for gold. The United States dollar is not backed by gold or any other precious metal. The gold standard was completely replaced by fiat money, a term to describe the currency used due to a government order, or fiat, that currency must be accepted as a means of payment. While gold coins and ingots continued to dominate Europe's monetary system, it wasn't until the 18th century that paper money began to dominate.

The Bank of England succeeded in ending the gold standard by appealing to patriotism, urging citizens not to exchange banknotes for species of gold. Even Singapore, which is generally considered to have one of the healthiest balance sheets on the planet, has only 2% of its money supply in gold. The gold standard prevents inflation, since governments and banks are unable to manipulate the money supply (for example, gold worked as a medium for international trade and high-value transactions), but in general its price fluctuated compared to everyday silver. As such, commodity money gave way to representative money, and gold and other species remained as backup.

The gold standard limited the flexibility of central banks' monetary policy by limiting their ability to expand the money supply. When you control money, you control everything: financial markets, consumer prices, perceptions of risk, investment habits, savings rates, hiring decisions, wage increases, sovereign debt, housing creation, etc. In addition, the Federal Reserve had limitations on what measures it could take if it printed more money, devalued the dollar; if interest rates fell, investors and gold owners sold their gold abroad and reduced the country's supply of gold. From the more widespread acceptance of paper money in the 19th century, the gold bullion pattern emerged, a system in which gold coins do not circulate, but authorities, such as central banks, undertake to exchange the circulating currency for gold ingots at a fixed price.

Simmons, in the United States, adherence to the gold standard prevented the Federal Reserve from expanding the money supply to stimulate the economy, finance insolvent banks and finance government deficits that could prepare the conditions for expansion. According to statistics from the Banque du Liban, the value of Lebanon's gold reserves is equivalent to almost 50% of the country's money supply. The gold standard is a monetary system in which a country's currency or paper currency has a value directly linked to gold. .