ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Gold Standard History :: Gold Bullion Standard: UK, US

Updated on July 7, 2011

Gold Standard History

The Gold Standard history, in modern times, dates back to 1704. Historically the Gold Standard meant the Bank of England was legally required to exchange paper money for a fixed weight of gold. The history of the Gold Standard changed to that of the Gold Bullion Standard in 1925 when the Bank of England was merely required to buy and sell gold at a fixed price. The mantle of stability passed to the US in 1934 and lasted until 1971.

Gold's value throughout history has been based on the price stability of this precious metal. For many centuries gold has been consistently used as the constant against which all other stores of value have been measured. The gold standard is a monetary system where the economic accounting unit is a fixed weight of gold.

History of the Gold Standard

In 1704, the British West Indies adopted a gold standard based on the Spanish gold doubloon. In 1717, Sir Isaac Newton, master of the Royal Mint, effectively put Britain on a gold standard by establishing a new mint gold : silver ratio.

It was not until 1821 that this was formalized, following the introduction of a gold sovereign to the British currency, in 1816. Other major economies followed: Canada in 1853 (British gold Sovereign and US Eagle), Newfoundland in 1865, USA in 1873 (Eagle) followed by Germany (Gold Mark) the same year. Australia, New Zealand and the British West Indies followed the British gold standard.

Historically the use of gold as a yardstick was formalized in the currency system adopted by Europe and America until 191.

The way it operated in the United Kingdom until 1914 was that the Bank of England was legally required to exchange paper money (Pounds Sterling) [fiat] for a fixed weight of gold [specie].

The price of an ounce of gold was set at £3-17-10 1/2d (Three pounds seventeen shillings and ten pence halfpenny) in 1717. This price for gold lasted for more than 200 years.

The Gold Standard before the Civil War

Gold Standard and Currency Deflation

1914 saw the beginning of the 1st World War in Europe. This saw the replacement of gold sovereigns with treasury notes.The British government suspended convertibility in order to fund military operations.

While producers of commodities other than gold were able to secure higher prices, due to the gold standard, gold mining companies were not.

Throughout the war gold mines had only one outlet - the Bank of England. This was due to the prohibition of the import and export of gold. This was satisfactory as long as costs were stable and as long as the currency received was perceived to be at par.

However, when it was perceived that payment was being made in depreciated paper and that the United Kingdom government was benefiting by selling the production abroad, free of depreciation, the mining companies were not best pleased.

In July 1918 a committee of British Empire gold producers approached the British government and indicated the rise in production costs, the decrease in output, and that gold was paid for in depreciated currency. They suggested a special grant be enacted. The British government flatly refused the proposal.

The real depreciation in the UK currency became apparent when the New York exchange was unpegged (the £ to $ exchange rate had been pegged at $4.761/2 throughout the war) in March 1919. The exchange rate had dropped to $4.35 by July.

Currency Rate Deflation Consequences on the Gold Standard

The Australian government succumbed to pressure from its gold mining community and removed the embargo on the export of gold from February 1919. Most gold was sold to the East.

On July 24 1919 African gold producers entered into an agreement to sell all gold to the Bank of England on condition they could sell it in the open market within 5 weeks of its arrival. Thus the producers could be paid in US$ and negate the currency exchange depreciation of £ Sterling.

The gold, in fact, was sold at gold par, but the resulting £ Sterling obtained represented a premium in paper, simply due to the fact that paper (sterling) had depreciated.

Gold Bullion Standard

In late 1919 the United Kingdom policy was to revert to an effective gold standard. In a preliminary action the Currency Committee recommended that £150m should be concentrated in the Bank of England. This had been achieved by 1920.

Eventually, Winston Churchill, as Chancellor of the Exchequer, introduced the Gold Bullion Standard in 1925. The gold bullion standard ran until 1931. Under the gold bullion standard the Bank of England was merely required to buy and sell gold at a fixed price.

in the wake of the stockmarket crash of 1929, the large divestment of gold out of the US, and the ensuing depression, the United Kingdom economy was not strong enough to support even the gold bullion standard and it was forced to suspend the gold bullion standard.

It was not until 1933 that the US abandoned the gold standard. This action allowed the US economy to improve following the period of banking instability caused by the removal of funds during the bank panics. The mantle of stabilizing the price of gold then fell to the United States.

FDR Ends Gold Standard in 1933

United States Role in Gold Price Stability

In 1934 the mantle of stability for the price of gold passed to the United States. Franklin Roosevelt, the US President, then set a price of $35 an ounce.

During 1939-1945 the UK gold stock was almost all used to fund purchases of war paraphernalia. Winston Churchill decided that it was impractical to return to a gold standard. Britain was effectively bankrupt.

In 1944 the International Monetary Fund was established which introduced an international monetary system where international currencies could be converted to US dollars which in turn were convertible to gold. This established the gold-dollar standard.

This lasted until August 1971, when Richard Nixon officially abandoned the dollar's link to gold. This was due to fiscal problems related to expenditures for the Vietnam War.

American private citizens were once again allowed to own gold.

The Gold Standard - The Consequences for the American People

Comments

    0 of 8192 characters used
    Post Comment

    • Cache Metals profile image

      Cache Metals 

      6 years ago from Toronto, Ontario

      Monitor the price of gold, live! Gold spot price chart: ttp://humagaia.hubpages.com/hub/Gold-Standard-History

    • Sally's Trove profile image

      Sherri 

      7 years ago from Southeastern Pennsylvania

      This is a great article that sheds needed light on why gold is priced the way it is today, and how worth is no longer measured by a thing of value but by an economic-political concept.

      This Hub is also a valuable gateway, via its links, into other important aspects of understanding gold. Voted up and useful.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)