The History of the Gold Standard

Throughout history, communities have used precious metals as the currency of trade. These metals were used as the means for which trade could take place and were therefore the currency of the state. Later, with their own specific currency, they would base said currency typically on silver. Britain was the exception to this, as starting as early as 1717, they backed the British currency in gold. After the Napoleonic Wars (which induced financial unease), the British parliament passed a law in 1819, forcing the Bank of England to make all its currency notes changeable to gold. In 1844, through the Bank Charter Act, the Bank developed a branch called the “Issue Department” which was solely responsible for making sure each British note was backed up with gold. In the United States, the Coinage Act in 1702, specified that the US Mint ratio between silver and gold was 15/1 (respectively). In 1934, a new Coinage Act was passed, demanding that the ratio would be 16/1. Due to inflation, few countries were drawn to the system. During the “mid-century, the dominant direction of movement was away from the gold standard, not to it” (6). Inflation threatened to uproot the system, and some large states (namely Belgium, Switzerland, and the Netherlands) were too afraid to try and follow the gold standard for fear that it may completely dismantle the international system. In 1877, there was a conference in Paris which was interested in developing some sort of global standard. It did not, however, succeed in doing so.