Question

What were the main advantages of the gold standard? Why it was abandoned? Do you think countries should start to use gold standard again?

Answer 1

Advantages of the GOLD STANDARD?

1. Disequilibrium of balance of payment will be corrected because of the cross border flows of gold.
2. It is considered as a simple monetary standard.
3. It does not require the interference of government
4. The supply of gold is restricted, so the chances of inflation in countries are rare.
5. Gold standard ensured stability of exchange rates

Why GOLD STANDARD was abandoned?

Gold standard was abandoned by the year 1971, because in 1930s U.S faced a depression in the economy. Gold standard had nothing to do to cure this economic problem. Moreover, the Inflation in the economy was fully depended upon the rate of gold that mined. Thus changes in the money supply was not easy with gold standard. The usage causes wear and tear in that precious metal. Gold standard is considered to be not suitable for developing countries.

Should countries start to use gold standard again?

Gold standard had some drawbacks and that is why it was abandoned. It is not suitable for developing countries. More than that it will not ensure a flexible exchange rate system in the economy. So, starting to use gold standard is not advisable.