Causes of Failure of Gold Standard in Modern Economy

Causes of Failure of Gold Standard

Causes of Failure of Gold Standard

In short, the gold standards failed due to the demand for expansion .Essentially, the gold standard is an artifact of before times, more ignorant times.  It became extraneous to current financial theory. As paper money misplaced cost against gold, the opportunity of a run from paper to gold was continuously growing, putting governments in a very bad position. 

In Elastic Supply of Gold

Population grew rapidly, economic expanded demand for gold rose up, and gold mine could not supply enough of gold to meet the rising demand.

In Elastic Economy

Elastic economy is the basic conditions of the working of gold standard. Economics were no free after First World War. The develop country like Germany and U.S.A adopted protection policy to develop industry. The developing country introduced license and Quota system. They also adopted exchange control to check imports and export, balance of payment. These worth of hurdles in the free working of this system.

Movement of Gold

Free inflow and outflow of gold is another basic condition of this system. Many develop countries did not follow this practice. USA and France demand gold as reparation interim of gold after the First World War 3.25 of the world gold assembled in these two countries. They dump this gold. They did not inflate their currency. The rest of the world war had not enough of gold to run this system. Thus gold standard broke down.

Abnormal Condition

Gold standard functions in normal condition only. It does not function well in abnormal conditions like wars, political crises and economic depression. So the First World War and fit out fall, the changing political position of the world and the great economic depression in 1929 were the main causes of the failure of gold standard. Thus this standard broke down in the world in 1930. 

Gold Standard

When gold determined the value of goods and services and place a vital role in all types of transaction that is called gold standard. 


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