Question

What approaches do you think some countries had to make to safeguard their gold reserves? How did abandoning the gold standard early help some countries in stabilizing their economies

Answer 1

The gold standard is a monetary system where the currency of a nation is attached to the gold value. A certain amount of paper money can be exchanged into a set amount of gold in a gold standard scheme. Countries on the gold standard, without raising their gold reserves, can not increase the amount of paper money in circulation. From the late 1800s to the 1930s, most of the world's countries–including the United States–followed an international gold standard

In 1933, when he signed the Gold Reserve Act in 1934, President Roosevelt took the U.S. off the gold standard. This bill made owning certain types of gold illegal for the government. Citizens had to exchange their gold coins, gold bullion and paper money certificates at a fixed price of $20.67 per ounce.

To help fight against the Great Depression. In the early 1930s, the U.S. government found it could do little to stimulate the economy in the face of rising unemployment and spiraling deflation. The U.S. and other governments had to keep interest rates high to deter people from cashing in reserves and depleting the supply of gold, but that made it too expensive for people and companies to borrow. But President Franklin D. Roosevelt cut the ties of the dollar with gold in 1933, allowing the government to inject money into the economy and lower interest rates. A gold standard would put the Fed in a similar situation. However, the supply of gold is unreliable: if miners went on strike or new gold finds were unexpectedly halted, economic growth could stop. The Fed could not put more money into circulation to keep up, drive down wages and stifle production if the output of goods and services grew faster than gold supplies.