Because of a uniformity in credit expansion or credit contraction in the participating countries, the gold standard mechanism causes considerable inflationary and deflationary tendencies throughout the world. It is not at all certain that the actions taken by all the central banks will neutralise each other. Thus, the credit contraction and depression in one country may spread to other countries. Similarly, inflationary spirals in one country may also spread to other countries.

There is nothing in the gold standard mechanism itself that can prevent such a world-wide deflation or inflation. The gold standard mechanism lacks a central authority which can co-ordinate the domestic credit policies of the participating countries.

7. The gold standard system is costly in that the medium of exchange consists of expensive metal. It is wasteful as well. Gold as a means of international settlement is wasted unnecessarily under the system in its orthodox form. For under it “buffer reserves,” i.e., reserves above the minimum reserves are generally kept as shock absorbers.

8. Gold standard is unsuitable for an expanding or newly developing economy, committed to a policy of planned economic development.


9. Gold standard is an anachronism in present days where every country stresses the goal of full employment as the fundamental objective of its monetary policy. As Robert Bryce has remarked, monetary policy in modern times is recognised as “too important and too close to the heart of fiscal sovereignty to be entrusted to any automatic or even semi-automatic system.”

Further, in the modern world of paper money and bank credit, there is no escape from a ‘managed’ currency. Thus, when managed currencies are a fait accompli, gold standard loses its powers.

It may be concluded, that while in gold standard gold is regarded as a master, in the present international monetary set-up gold will serve merely as a measure. It would not perform an eminently useful role in a modern international payments system. It would serve as a common denominator for different currencies. It would also remain the most liquid international asset. But the glitter of gold will not have the charm of traditional gold standard system in the modern monetary mechanism.