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? (Please type response)

Answer 1

Answer:

1.

There is not a single reason for the gold standard failing. Instead, it is combination of events that occurred over a longer period of time. These events include:

World War I. This caused new political alliances with other countries and increased debt. Government finances deteriorated and put the gold standard in limbo.

Stock market crash in 1929. Many countries raised interest rates during this time and the higher rats only made the economies worse causing further problems with the gold standard.

After World War II the leading superpowers put together a legal agreement establishing the framework for global currency markets and their trading. When this happened, the gold standard declined faster and eventually disappeared in the early 1970s.

This can be argued both ways but most experts agree that there is not a valid case. Paper money operates much more efficiently. As technology increases, we may some day consider going to an electronic currency (ie. bit coin but something else). This will take a lot of work and time though. Returning to the gold standard would be a step backward.

2.

It can level out and absorb financial shocks that occur in developing countries due to instability (natural disasters, terrorism, etc).

The policies can increase world trade as more lenders are willing to provide financing to businesses in a country when they have adopted these standards.

Too much reliance on a single standard. This can increase risks if it fails or has problems.

Exceesive Debt relief to countries with financial problems. This will adversely impact other countries that are financially stable and thriving.