Home Finance Monetary Gold Standard, Definition and Features

Monetary Gold Standard, Definition and Features

monetary gold standard

Monetary Gold Standard refers to the overall set of laws and practices which control the quality of money in a country as relates to gold.

Monetary Gold Standard Review

The monetary gold standard of a country regulates and determines the exchange value of goods and services as explained by Archive.

Thus the monetary gold standard of a nation is its standard monetary unit. A monetary gold standard aims at maintaining stability in the internal as well as external value of the currency.

Different types of monetary gold standards emerge in the evolution of money, but only two types of monetary standards have been popular with nations in the recent past.

They are metallic or commodity standard and paper or flat standard.

Commodity / Gold Standard

When a unit of money is defined as a given quantity of a commodity and that commodity is used for redemption of the monetary unit, the money standard is known as commodity standard.

This could also refer to a monetary system in which the value of the monetary unit is expressed in terms of a fixed quantity of some metal.

E.g. if the monetary system is related to only one metal, its known as Monometallism.

Commodity standards include the following variants:

  1. Monometallism
  2. Bimetallism
  3. Symmetallism
  4. Composite commodity standard
  5. Multiple commodity reserve standard


Monometallism, as its name implies denotes the use of a single metal as commodity money (where the money is redeemable in one metal only e.g. Gold or Silver) examples of monometallism include:

  1. Gold currency or coin standard
  2. Gold bullion standard
  3. Gold exchange
  4. Gold reserve standard
  5. Gold parity standard

Gold Currency or Coin Standard

Gold standard is a state of affair in which a country keeps the value of its monetary and value of a defined weight of gold at equality with one another, or its monometallic standard In which the value of the monetary unit is fixed in terms of a specified weight and purity.

However, the gold currency standard which is also known as gold coin standard, gold circulation standard or full pure gold standard, prevailed to 1941 in the UK, USA and certain other countries.

Gold coins standard had the following features:

  • Gold coins of a definite weight and fitness circulated within a country e.g. in England the sovereign was the gold coin which contained 123.2744 grammas of gold of 11/12th
  • The gold was full and an unlimited legal tender (i.e. sovereign in Britain)
  • Non-gold metallic coins and paper currency notes also circulated side by side but they were convertible on demand into gold coins at fixed rates.
  • There was free coinage in gold, anybody could take gold or jewelry to the mint for coinage.
  • Gold coins could be freely minted for other purposes.
  • Export and import of gold were free and unrestricted.

From all indication, this standard was costly to operate and it was given up in favour of the gold bullion after the First World War.

Gold Bullion Standard

This standard was in operation in the UK from 1925-31 and in India 1927-1931.

The gold coin standard was abandoned in favour of other exchange systems during times of war and period of economic distress.

England and France for example, discontinued the gold coin standard during the Napoleonic wars.

Inconvertible banknotes circulated in England in 1798 in order to arrest any gold outflow from England as a result of the conversion of bank notes into gold.

The principal features of this monetary system were:

  1. Under the gold bullion standard, currency was convertible into gold only in large amounts.
  2. Only foreign central banks could exercise the privilege on conversion metals.
  3. Since it was only the government or its agent, the central bank, which purchased and sold gold bullion at fixed rate or prices, scarce resources of gold were managed in the overall national interest and the cost of minting gold coin was eliminated.Hoardings, the melting down of gold coins in the process of circulation, all were reduced.
  4. It improved international trade; it conserved the gold reserves of countries that adopted it.

Monetary Gold Standard has an overall performance in the financial strength of the nations currency since time immemorial.

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