Gold Exchange Standard example essay topic

A. For thousands of years, gold was the ultimate money. It could buy anything including hearts. It was wealth and power to be sure, but it was also enchantment, with a special lustre and reasurring weight and feel. The lure of gold drive ships across stormy seas and explorers across rugged mountains to places as remote as Canada's Klondike region near the Arctic Circle. Gold isn't used as money any more.

It still glitters, but it's treated more like soy beans or pork bellies than a ransom fit for a king. Money didn't exist in ancient times, so people had to trade with each other - or barter - to obtain the items they wanted. The first trades were probably animal skins for grain, or cotton for livestock. But these exchanges were cumbersome, and some common place commodities, such as grains, started to assume the role of money.

In early Egypt, for exemple, barley, an important source of food, became the accepted means of payment for goods and services. By 700 B.C., though the Egyptians had abandoned barley and adopted gold as their primary instrument of exchange. A rare and beautiful metal, gold had become the universal symbol of wealth and power. And, being portable and durable, it was an ideal form of money. B. By the l 5th century trade and commerce had expanded tremendously. When King Croesus of ancient Lydia (now Western Turkey) had gained control of Asia's richest gold mines for the Persian Empire, he wanted others to recognise his newfound power and ordered the first gold coin to be made. Bearing the image of a lion and a bull, the coin became the standard of exchange for all trade and commerce.

A need appeared for a new, less cumbersome system of making payments. The goldsmiths met this need. Their system worked this way: people would deposit their gold coins at their local goldsmith's. In return, the goldsmiths would give them a receipt.

Eventually, the receipt began to circulate as money because they could always be redeemed for the gold itself. Gradually, countries came to adopt a form of the goldsmith's system. Their governments printed currency and backed it up with gold they held in official reserves. And so the "gold standard" for currencies was born.

One of the first countries to adopt the gold standard was Great Britain in l 9 l 6. It made its currency the pound, equal in value to an ounce of gold. Then Coinage Act of l 792 first put the young American nation on a "bimetallic standard", backing the dollar, which was a coin then, both gold and silver. With the world at war for the first time, people were seeking security, they exchanged their currency for gold. But governments soon saw their reserves run seriously low, as a result.

By l 914 most countries, except the United States, abandoned the gold standard to protect their reserves. By the mid l 930's, practically all the major nations had abandoned the gold exchange standard. Governments would accumulate dollars which they could redeem for gold at the U.S. Treasury. Of couse, gold will always be the metal of choice for the affluent, who like to adorn their homes with gold-leaf sinks, bathrooms and picture frames. Today, gold can be bought and sold in several different forms: coins, bullion or perhaps just as paper claim to the metal. There are two types of gold coins: bullion coins and numismatic.

The bullion coins are produced by countries as legal tender, which means they can be spent as money. Prices are based on the local gold price in London (The "London Fix"). Numismatic gold coins no longer circulate as money. Their value derives more from their condition and rarity than their actual gold content. Many investors hold paper claims to gold in the form of future contracts. These contracts are nothing more than a commitment to buy or sell gold at a future time at a pre-agreed price.

Typically, the buyer and seller meet at a commodity exchange to work out future contracts. Today gold has assumed the role of a commodity such as wheat or cotton. And like any other commodity, its price is determined in a free market by the forces of supply and demand.