The most acclaimed advantages of international gold standard are:
1. International Medium of Exchange:
International gold standard provides the gold standard countries an international medium of exchange and standard of value. Because gold is an almost universally demanded valuable commodity, it is generally acceptable as a means of payment.
Thus, payments in gold are acceptable to foreigners. Moreover, exchange rates of the currencies of different countries can be easily determined when their par values are expressed in terms of gold. Similarly, gold also serves as a measure of value of different commodities, thus, enabling us to make a ready comparison of the worth of goods in different countries.
ADVERTISEMENTS:
2. Stability of Exchange Rates:
Perhaps the great advantage of the gold standard, whatever, the form it may take (whether gold coin standard, gold bullion standard, or gold exchange standard), is that it provides stability of exchange rates among the countries that adhere to it, and stability to the internal value of the currency, maintaining at the same time its internal value. Gold standard ensures that exchange rates do not move beyond the specie or gold point within limits of slight variations. This stability of exchange rates facilitates international capital movements and leads to expansion of international trade.
3. Parity of Price Levels:
Under international gold standard, price levels between different countries are harmonised. The movement of gold from country to country causes price levels to rise and fall in such a manner that they are brought into equilibrium among all the nations which maintain gold standard.
ADVERTISEMENTS:
However, this does not mean that, the price levels in different countries are identical; they are uniformly kept in equilibrium, i.e., they will be moving together. The price level in any country will neither remain very low nor very high so that, it can gain permanent export advantages over others or suffer permanent disadvantages in imports.
4. Automatic Laissez-Faire Standard:
International gold standard is a laissez-faire standard in the sense that it functions automatically and that it requires no intervention of the government or the monetary authority for adjustments.
The golden rules of gold standard enjoin on the government not to inflate currency and credit beyond proportions justified by gold reserves. Further, it was claimed to be automatic in the sense that no international organisation or agreements were necessary for its successful operation. It is argued that when on the gold standard the balance of payments is automatically brought into equilibrium.
ADVERTISEMENTS:
Even today, the IMF has not replaced the automatic mechanism of international gold standard by some other system. Gold exchange standard in a form is retained only to be supplemented and modified to the present conditions by other suitable devices.
5. Public Confidence:
Gold standard system inspires public confidence insofar as the public has a strong bias in favour of gold. In fact, international gold standard has strengthened the general habit of using gold as an international means of payments.
International gold standard was, thus, in many ways a very useful monetary system for the growth of world trade and transactions.