gold standard

noun
Updated on: 20 Nov 2017

Definition of gold standard

1 :a monetary standard under which the basic unit of currency is defined by a stated quantity of gold and which is usually characterized by the coinage and circulation of gold, unrestricted convertibility of other money into gold, and the free export and import of gold for settling of international obligations
2 :benchmark 1a

Examples of gold standard in a Sentence

  1. the gold standard for accurate experimental procedures is the double-blind medication trial

Recent Examples of gold standard from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'gold standard.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of gold standard

1831


Financial Definition of GOLD STANDARD

gold standard

What It Is

The gold standard is a monetary system in which the representative currency is based on a fixed amount of gold held by the central government.

How It Works

Paper currency is actually a "legal note," i.e. a debt between the currency holder and the government.  In theory, currency represents the obligation to make a payment of the stated amount when presented to the government.  When the gold standard was in place, an individual could present a $10 bill to a federal bank and receive $10 worth of gold in return. Gold was used as a base, because it was durable, rare, and almost universally valued.

The price of gold became a barometer for the underlying value of an economy.  But because gold is a tangible asset, the price of gold can rise and fall rapidly. It's also subject to speculation, discovery and theft.   As a result, the value of currency based on gold depends on the value of gold.

In the last century, the world's economies grew too quickly to be accurately represented by the world's reserves of gold. Therefore, gold standards have been abandoned by almost all economies. The United States abandoned the gold standard in 1971.

Why It Matters

While the gold standard regulates the value of exchanges throughout the economy, it also limits a central government's ability to make monetary adjustments in the current global economy.

After the abandonment of the gold standard, governments gained more ability to affect economies through monetary policy. Monetary policy is contingent upon the central government's ability to adjust an economy's demand for money through interest rates and the supply of currency.  This is especially important during times of emergency such as war or natural disaster.


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