Question

Britton Woods was the last time a significant portion of the globe participated in a gold-based fixed exchange rate system. Some economists and politicians, (Ron Paul, for example), believe that some type of gold standard should be reinstituted today. Do you agree with that position? Why or why not?

Answer 1

At the time of britton woods system, the monetary system which was followed was known as gold standard system in which the dollars were backed by gold and any person could exchange it for a fixed amount of gold.

However, going back to that system is not favoured because of various negative implications it had when it was around and reintituting it only bring those problems back.

the gold standard may lead to price fluctuation in the market and there would be too much price volatility because gold is always in demand irrespective of it's price and people may tend to hoard it when they are uncertain about the future which will result in deflation as the available money supply in the market will decrease which will not be enough to support the economic activity in a market.It will further give rise to unemployment and government will bring in various fiscal and monetary measures to improve the situation.

Various fiscal and monetary measures which are available to the government for use during the hard times will not be there if there is gold standard like printing more money or buying the sovereign bonds in the market to provide it with an objective to provide more money.The government would be left with very few options to avert a financial disaster and restore the economy and prevent any downfall of the economy which would proved to be very hazardous and would take the economic situation to the point as it witnessed during the 1920s.

Also it's worth mentioning that a huge amount of resources would be spent on producing the gold coins and on it's maintainance which may result in loss of huge funds which could otherwise be utilised for more welfare projects and can proved to be a burden on the financial accounts of a country.

So, keeping all that in mind, i do not agree with the reinstitution of gold standard.The economy of all the country is flourishing after it's abolishment and would continue to do so with the right system and going back to the gold standard would only bring back all the problems that the world faced in past.