Brief Notes on Gold Bullion Standard

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The gold bullion standard was a modified system of gold coin standard, in which coins were not circulated but only a sizable amount of paper currency and other forms of money could be converted into gold bullion. The following are the features of the gold bullion standard system:

1. There is no circulation of gold coins.

2. Coinage of gold is not permitted.

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3. Paper currency notes are not fully backed by gold reserves. Yet, the government recognises convertibility of notes into gold.

4. The monetary authority undertakes the sale and purchase of gold at fixed prices.

5. Import and export of gold are fully and freely allowed.

Economy in the use of gold, elasticity of money supply: proper use of gold in public interest, simplicity of the monetary system, stability in the external value of the currency, automaticity of its working are the chief advantages claimed under the gold bullion standard.

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On the other hand, it being a fair weather friend and may not be able to run smoothly during emergency times, necessity of government intervention for its effective working.

Thus, not being self-regulating as the gold coin standard, and commanding a lesser public confidence due to fiduciary issue of notes under the system, are the main shortcomings of the gold bullion standard.

After the breakdown of the gold coin standard in the World War I years, England resorted to the gold bullion standard in 1925. The Hilton Young Commission also recommended it for India in 1926. Australia adopted it in 1923, France in 1928. In 1931, England and India, both gave up the gold bullion standard.

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