The gold standard is often mentioned, but rarely explained. Put simply, it is a monetary system under which the economic unit of account is based on a fixed quantity of gold. That means paper currency notes are convertible directly into specific quantities of gold.
Looking a little deeper, there are three types of gold standard. Those are:
- Gold specie standard: A unit of money is tied to the value of circulating gold coins or has the value of a particular gold coin in circulation. Other coins that are less valuable may also be in use.
- Gold bullion standard: Authorities agree to sell, for a fixed price, gold bullion on demand in exchange for currency. Gold coins are not circulated.
- Gold exchange standard: A government that does not itself use gold specie or bullion standards guarantees a fixed exchange rate between its own currency and that of another country that uses either of the other gold standards. As the two currencies are tied, a gold standard is created for the first country by default.
Learn more at goldinvestingnews.com