goldstandard

The gold standard is a monetary system in which a country’s currency has a value fixed in terms of a specific quantity of gold. In a pure gold standard, money can be exchanged for gold at a fixed rate, and central banks hold gold reserves to back the money supply. The amount of money in circulation is constrained by the country’s gold holdings, helping to anchor long-run price levels and influence international prices and exchange rates.

There are several historical forms. The classical gold standard, predominant in the 19th and early 20th centuries, tied many currencies to gold and allowed free convertibility, supporting stable exchange rates but sometimes generating deflation or limited monetary policy flexibility during downturns. The system largely broke down during the World Wars, saw partial revivals, and was largely abandoned in the 1930s. In the Bretton Woods era (1944–1971), currencies were fixed to the U.S. dollar, which itself was pegged to gold at a fixed rate; this arrangement ended when the United States suspended gold convertibility in 1971, effectively ending the era of formal gold backing.

Today, no major economy operates a formal gold standard. Most countries use fiat money, with central banks holding gold as part of diverse foreign-exchange reserves and for potential balance-sheet considerations. Gold remains influential in monetary discourse as a potential anchor or reserve asset, but it is not the basis of current monetary policy in leading economies.