What is International Gold Standard?

The international gold standard refers to the international monetary system which is based on gold as a standard of value. Under this system which is based on gold, each country expresses the value of its currency money the unit of account (such as rupee, dollar, pound, franc, etc.) in terms of a fixed quantity of gold.

Either the gold coins are issued as standard coins for local purposes or the value of local currency is fixed in terms of gold and its supply is maintained in exact proportion to the amount of gold reserves possessed by the country’s monetary authority.

The external values of the different countries’ currencies are apparently determined by the gold parity. The international gold standard is thus, characterised by a fixed exchange rate system.

Furthermore, it is an important condition of the gold standard that the monetary authorities of different countries (which adopt the gold standard) should buy and sell gold at a fixed price in an unlimited amount. Further, there is a free flow of gold between countries, so that gold can always serve as a means of international payment.

The international gold standard is primarily concerned with the external value of the currency. It serves as a mechanism for maintaining perfect stability in the exchange rates and “for keeping an organic touch with one another, the price and income structures of the various countries.” Indeed, invariably, the international aspect of gold standard is more important than its domestic facet.

Chronologically speaking, the inception of international gold standard may be found in the last quarter of the 19th century when major trading countries like Germany (in 1873), France (in 1878) and the U.S.A. (in 1900) adopted the gold coin standard, though England had already adopted it as long ago as in 1816.

Similarly, Russia, Holland, Austria etc., also adopted gold exchange standard later in the early 20th century. Thus, during the years preceding World War I in 1914, gold standard which became a universal standard or “International Gold Standard” was in full swing.