What was the gold standard and what was it used for?

The words gold standard sound familiar to most, if not all, people. And although we do not have full knowledge, it has had consequences in Western life for several decades. For what reason? Because for several decades it was the one used to establish the price of the currencies of countries by their equivalence with a certain amount of gold.

Although the world has changed a lot, it is worth remembering what we are talking about when we refer to the gold standard. What was its origin, who established it, what it consisted of and when it came to an end.

Do you want to know the details? Below is a summary of his life. As you will see, linked from beginning to end with wars.

The Origin of the Gold Standard: World War II and the Bretton Woods Agreements

The world changed radically with World War II. Although it began to do so a year before the end of the conflict. Specifically, in July 1944, when more than 40 representatives of nations from all over the world met in Bretton Woods (United States). At this meeting, sponsored by the United States, presided over by Franklin Delano Roosevelt, the so-called Bretton Woods Agreements were reached.

• What was the purpose of the meeting?: to establish a new economic order that would prevent consequences such as those that occurred after the Great War (1914-1918), which gave rise to World War II. They wanted to achieve stability in commercial transactions with an exchange rate characterized by stability.
• Who were the leaders who met?: among others, the Secretary of the Treasury of the United States, Henry Morgenthau Jr; the English economist John Maynard Keynes representing the United Kingdom; or the French politician Pierre Mendès France, who would later become prime minister of France.

The Bretton Woods Agreements ended with several important decisions. the establishment of the gold standard as a stabilizing element. The United States’ commitment that the price of gold would be $35 an ounce. Or the creation of the International Monetary Fund (IMF), among others.

Its end: the Vietnam War and the devaluation of the dollar

The gold standard resulting from the Bretton Woods Agreements was in force until the 1970s. One war motivated its beginning and another its end. Specifically, the Vietnam War (1965-1975). And just as in Bretton Woods, the United States, with Richard Nixon as president, took the initiative, but to end this pattern.

Why did Nixon decide to do away with one of the pillars of Bretton Woods? Due to the expenses occasioned by the Vietnam War. This war forced the country to print billions of dollars, which led to the devaluation of this currency.

Some countries such as the United Kingdom and France demanded that dollars be converted into gold, causing a depletion of U.S. gold reserves. The final consequence of this situation? Nixon intervened, repealed part of the Bretton Woods Agreements and ended the gold standard.

Will this pattern be re-established?

After Nixon’s decision in 1971 there have been several attempts to re-establish this pattern. But none have borne fruit. One of them, perhaps the one that came closest, in 1984. With Ronald Reagan as president of the United States, his presidential adviser Jack Kemp passed the Gold Standard Act of 1984.

What was the objective of this initiative? First, the United States should return to the gold standard. And measures such as that any U.S. citizen could exchange both coins and Treasury bills in gold coins or bars at any branch of its Federal Reserve.

The rise and fall of the standard of measuring the value of gold-based currencies has been linked to the initiatives of U.S. presidents. It is worth considering whether it will be restored at some point in the future.