Return To The Gold Standard example essay topic

387 words
The economists usually refer gold, silver, platinum and palladium to "elite" group of precious metals. Precious metals in general and gold in particular are specially ranked among other mineral resources. Gold traditionally was considered one of the first precious metals known to mankind. From the very beginning gold was used to produce precious jewelry, and, further, people started to use it as a base of monetary system.

In XIX century the major part of world countries introduced so-called gold standard, where the exchange rate was tied to gold. During the period of Great Depression the major part of countries had to refuse from using gold standard. The countries hoped that such step could allow them overcoming decline in the world economy. Further, gold again became the direct participant of the monetary system, when in 1944 Breton-Wood Agreement fixed new principles of monetary policy. According to the agreement, US dollar became the main stand-by currency. Exchange rate of other countries was firmly tied to dollar.

Dollar, in its turn, was tied to the gold. The gold standard was valid up to 1971, when President of the United States Nixon cancelled convertibility of dollar to the gold. Gold considerably lost its significance for world monetary system. However, modern economists and politicians star to advocate a return to the gold standard. Their proposal is based on the affirmation that return to the gold standard is a good way to keep inflation low and maintain economic growth and stability. According to Jack Kemp, former congressman and the Republican vice-presidential nominee in 1996, American government should accept the fact that our "inability to manage fiat currencies is causing the global economic slowdown" (n. p.

). He quotes the words of Ronald Reagan who said that he didn't know any great world nation that refused from using the gold standard and remained great. The idea of return to the gold standard is really not new. George Sores examined the crisis of the world capitalism and underlined that exchange and currency markets play destabilizing role in the world economy. Really, the fluctuations of exchange rates inadequately reflect economic situation of the country.

Yet, the influence of these rate exchange fluctuations is quite high.