Question

The gold system is a monetary system where a country’s currency is directly linked to gold. A country that uses the gold standard sets a fixed price for gold and that price determines the value of the currency.  The gold standard was first put into operation in the UK in 1821. The UK stopped using it in 1931 and the US followed suit in 1933. The gold standard is currently not used by any government.  The appeal of the gold standard is that it takes the issuance of money out of the hands of humans. Physical gold quantities acted as a limit of issuance and it helped to avoid excessive inflation or deflation. It helped to promote a stable monetary environment. While it is unlikely that we would return to gold standard gold should still be looked at as a currency. Their value fluctuates with the changing market.

The international monetary system is the framework that facilitates the exchange of goods, services, and capital among countries and sustains sound economic growth. To be effective, this framework must balance the needs of individual economies and the system as a whole. In many Asian countries, for example, the US dollar had been the dominant currency for invoicing, international transactions and as a reserve policy for many years. Limits on access to the US dollar in the late 90's showed the risks of sudden stops in capital flow. Emerging markets suffer in that they often cannot borrow in domestic currencies so Asia’s reliance on a currency from outside their region raises economic vulnerabilities.  In recent years there has been less dependency on the US dollar and larger pushes to use Asian currencies such as the Yen.

Please explain in further detail

Answer 1

The gold system was a system which was followed by the countries where the currency used to be backed by the gold. However, countries soon realized its drawback and followed the footsteps of the mercantilists by coming out of the gold standard.

In developing nations, this place of gold has been more or less taken by dollars. Developing nations have got a sort of obsession with dollars. However, now with the developing nations dominating in the world market, the use of the Asian currencies, like yen and rupees, is on increase.

It has been anticipated that soon the Asian currencies will take over the world and with having some of the fastest growing economies in the world, Asian economies will soon become the world leaders.