What is the gold standard, the determination and changes of the exchange rate under the gold standard system

  The gold standard is a monetary system, and this gold standard will directly affect the exchange rate, which in turn affects the entire foreign exchange market. So what exactly is the gold standard, and what are the decisions and changes in the exchange rate under the gold standard? This article will give you a detailed introduction to the problems related to the gold standard.

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  What is the Gold Standard

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  The gold standard is the gold standard, and the gold standard is a monetary system with gold as the standard currency. Under the gold standard, the value of each unit of currency is equal to a certain weight of gold (that is, the gold content of the currency); when different countries use the gold standard, the exchange rate between countries is determined by the ratio of the gold content of their respective currencies - the gold parity. The gold standard became popular in the mid-19th century. Historically, there have been three forms of the gold standard: the gold coin, the bullion standard, and the gold exchange standard. Among them, the gold coin standard is the most typical form. In a narrow sense, the gold standard refers to this monetary system.

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  1. Use gold to specify the value represented by currency. Each currency unit has a legal gold content. The currencies of various countries have a certain price ratio according to the weight of the gold they contain.

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  2. Gold coins can be freely minted, and anyone can hand over the gold bullion to the national mint to be minted into gold coins according to the gold content of the standard coin.

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  3. Gold coins are currency with unlimited legal compensation and have the right to unlimited means of payment.

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  4. The currency reserves of various countries are gold, and international settlements also use gold, and gold can be freely exported and imported.

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  5. Since gold can be freely transferred between countries, this ensures the relative stability of the foreign exchange market and the unification of the international financial market.

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  The determination and change of exchange rate under the gold standard system

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  When the exchange rate rise in the foreign exchange market reaches or exceeds a certain limit, the cost of the country's debtors to purchase foreign exchange in their own currency will exceed the cost of directly transporting gold out of the country for international payment, thus causing the outflow of gold, which causes the outflow of gold. The exchange rate limit is the point of gold export; on the contrary, when the exchange rate in the foreign exchange market falls to or exceeds a certain limit, the creditors of the country will get less from the exchange of foreign exchange for their own currency than directly importing gold into the country, thus causing gold. Inflow, this exchange rate boundary that causes gold inflow is the gold input point. Gold output points and gold input points are collectively referred to as gold transmission points, which constitute the upper and lower limits of exchange rate fluctuations under the gold standard system.

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  Under the gold standard system, coin parity is the basis for determining the exchange rate; due to the constraints of the gold transmission point, the exchange rate fluctuation in the foreign exchange market is always limited to a certain range, the highest is not more than the gold output point, and the lowest is not lower than the gold input point. Due to the small cost of shipping gold, the exchange rate fluctuates very little and the exchange rate is basically fixed.