By international gold standard is meant an international monetary system wherein all participating countries have legally (l) defined the unit of account (rupee, dollar, pound etc. monetary unit of the country) in terms of gold, (2) established a mechanism whereby their local currencies are kept equal in value to gold and to each other, (3) fixed the external value of their currencies through the medium of gold and, (4) their monetary authorities are willing to buy and sell gold at a fixed price in unlimited amounts.
In this way modern countries accepting the International Monetary Fund (IMF) Agreement are committed to the adoption of the international gold exchange standard. However, we shall see later on that the IMF scheme is something quite different from the gold standard system prevalent before 1930, wherein countries on international gold standard have various forms of domestic gold standard also.
Today, IMF member countries have paper standard or managed currency system at home and international gold exchange standard abroad. In the present chapter, however, we shall discuss ‘International Gold Standard’ as the monetary system that was prevalent prior to 1930.
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 U.S.A. (in 1900) adopted the gold coin standard, though England had already adopted as long ago as in 1816. Similarly, Russia, Holland, Austria, etc., also adopted gold exchange standard later on, in the early 20th century. Thus, during the years preceding World War I in 1914, gold standard which became a universal standard of ‘International Gold Standard’ was in full swing.