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Gold Standard (What this means for countries (You made systemic goal of…
Gold Standard
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Collapse 1914
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USA started to take over as ‘Hegemon’’ but was reluctant, had isolationist instincts and did not want to use Dollar to stabilise world financial markets
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Exchange of 2 Currencies
The exchange rate between two country’s currencies would be determined by their relative gold contents.
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Disadvantages
The supply of newly minted gold is so restricted that the growth of world trade and investment can be hampered for the lack of sufficient monetary reserves.
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Advantages
Highly stable exchange rates under the classical gold standard provided an environment that was conducive to international trade and investment.
Misalignment of exchange rates and international imbalances of payment were automatically corrected by the price-specie-flow mechanism.
Domestic wage and price adjustments would automatically correct external imbalances
So if you exported gold to pay for trade deficit, this would lead to adjustments in monetary and fiscal policy to lower wages, cut spending and deflate prices