Bring It Back to the Gold Standard
Laurenz Carlo G. Salindong
Mr. E.P. Salazar
Composition IV
17 August 2012
Bring It Back to the Gold Standard The 2007 global financial crisis considered by many economists to be the worst since the Great Depression in the 1930s caused the downfall of large financial institutions such as drop of interconnected stock markets and the bailing out of major banks. This was triggered by the complex interplay of over-valuated mortgages, accumulated malpractice of trading between buyers and sellers, and especially the lack of capital holdings of banks involved in those financial commitments (Simkovic, 253). This caused declines in credit availability and investor confidence which then had a major impact on the global stock market. The United States being a major template for the global economy surely hit other economies too. Due to the downfall of major economies like the States, currencies should revert back to the gold-standard monetary system for economic recovery and stability and in order to prevent another chain reaction of decline in economic dependents.
I. Gold-standard: the basis and platform of the world’s economies
The gold-standard was the foundation of economies around the world. It is the monetary system wherein the standard economic unit corresponds to a fixed weight of gold. The currency of a country is directly backed by its national gold reserves ("Gold Standard: The Concise Encyclopedia of Economics”, Web). During the pre-World War I period, countries such as Britain used the gold-standard as a system in which countries redeemed their domestic currencies in gold and the offsetting of the gold was through monetary authorities in order to maintain the existing monetary conditions (Bordo, 1). It was inevitable that some countries would have more gold than the others by means of geological reasons like England which was the centre of commodities and gold market, but still, many nations still stuck to this system of gold reserves. Their holding of a
Mr. E.P. Salazar
Composition IV
17 August 2012
Bring It Back to the Gold Standard The 2007 global financial crisis considered by many economists to be the worst since the Great Depression in the 1930s caused the downfall of large financial institutions such as drop of interconnected stock markets and the bailing out of major banks. This was triggered by the complex interplay of over-valuated mortgages, accumulated malpractice of trading between buyers and sellers, and especially the lack of capital holdings of banks involved in those financial commitments (Simkovic, 253). This caused declines in credit availability and investor confidence which then had a major impact on the global stock market. The United States being a major template for the global economy surely hit other economies too. Due to the downfall of major economies like the States, currencies should revert back to the gold-standard monetary system for economic recovery and stability and in order to prevent another chain reaction of decline in economic dependents.
I. Gold-standard: the basis and platform of the world’s economies
The gold-standard was the foundation of economies around the world. It is the monetary system wherein the standard economic unit corresponds to a fixed weight of gold. The currency of a country is directly backed by its national gold reserves ("Gold Standard: The Concise Encyclopedia of Economics”, Web). During the pre-World War I period, countries such as Britain used the gold-standard as a system in which countries redeemed their domestic currencies in gold and the offsetting of the gold was through monetary authorities in order to maintain the existing monetary conditions (Bordo, 1). It was inevitable that some countries would have more gold than the others by means of geological reasons like England which was the centre of commodities and gold market, but still, many nations still stuck to this system of gold reserves. Their holding of a
Cited: Bordo, Michael D., and Anna Jacobson Schwartz. A Retrospective on the classical gold standard, 1821-1931. Chicago: University of Chicago Press, 1984. Print. Kemmerer, Edwin Walter. Gold and the gold standard; the story of gold money, past, present and future,. New York: McGraw-Hill Book Co., 1944. Print. Lipsey, Richard G.. An introduction to positive economics. 6th ed. London: Weidenfeld and Nicolson, 1983. Print. Rockwell, Llewellyn. "The Gold Standard: Perspectives in the Austrian School." mises.org. Ludwig von Mises Institute, n.d. Web. 12 Aug. 2012. Simkovic, Michael, "Secret Liens and the Financial Crisis of 2008" American Bankruptcy Law Journal, Vol Wolf, Martin. Fixing global finance. Baltimore, Md.: Johns Hopkins University Press, 2008. Print.