Question

1. Why did the gold standard collapse? Is there a case for returning to some type of gold standard? If so, what is it? 2. What opportunities might current IMF lending policies to developing nations create for international business? What threats may they create?

Answer 1

1.

Gold standard is a monetary system where paper money or value of currency is expressed in terms of a fixed amount of gold. It collapsed because it didnot endured growth for a country's economy as it was a preventive measure to control inflation but after first world war, a huge amount of money was printed to meet military expenses which led to inflation. After second world war, dollar was made the standard currency which had a fixed value in terms of gold. There is no possibility of gold standard returning on the forum as it is not possible to express each currency in terms of gold and even the amount of gold would not be enough to be backed as reserves for a country's economy. It would create constraints in terms of convertibility of currency which would not be appreciated by any global economy.