Gold Standard - Research Paper Example

This paper will discuss both advantages and disadvantages that could be incurred if the United States economy returns to the Gold Standard, by presenting a brief history on US economy’s use of the Gold Standard and the circumstances surrounding the standard’s dismissal. From early centuries, Gold has always been placed at an esteemed position due to its use and functionality. Among the various precious metals that are found here on earth, Gold is considered the most 'valuable' as it has many applications, from being used in Jewelry to being the main tool in International financial transactions.

The major nations of the world including United States from the latter half of 19th century till 1920’s used Gold to pay for all the trade that was carried out between them. To standardize this form of gold transaction, a Gold standard was adopted. Under the Gold Standard, currencies of the countries, using gold for transaction, are tied to a specific amount of gold. So, when a country redeems or pays its money in the form of gold, it is said to be following or using the Gold Standard. This way, the government of the country which redeems gold and its counterparts who receive the gold will share a fixed-currency relationship.

The advantage, the nations were able achieve due to the use of earlier introduced Gold Standard was the adjustment of their Balance of payments. That is, when a nation has a trade deficit while doing trade with a particular country, they could balance it by paying in gold, as currencies were convertible to gold. This advantage could also be garnered, if the Gold Standard is reintroduced again, particularly in relation to United States Economy. The pro-group for the introduction of Gold Standard state that if the standard is introduced in United States, preferably within next 5 years, it could solve number of fiscal and monetary problems that has been plaguing the US economy in the recent past.

One of the main advantages that could be incurred is stabilization of the US’ Dollar value, which in a way could restore the confidence among the “foreign investors in U.S. government bonds,” and importantly could also “discourage reckless federal spending.” (Dykewicz, 2011). That is, with the Dollar serving as the world's reserve currency, it enables other countries to use it for all types of trade and even stockpile it, thus providing the U.S. Federal Reserve to print as much Dollar as it needs to fiddle with its economy as it sees fit.

The downside of such loose monetary policies includes higher inflation rates and a weaker Dollar, and so certain sections of experts advocate the return to the Gold Standard, with the hope that it could force the government to live within its means. (Jones and Walter, 2011). In a way, the return of Gold Standard could bring stability and strengthening of the US Dollar, thereby having many positive impacts on the economy. The positive impacts include solutions to the current unemployment problem, because strengthened or expensive Dollar would lead to people using more labor, and importantly would lead to fiscal discipline.

Thus, it is being pointed out that the current Fed’s policy of pouring trillions of Dollars into the economy to stimulate growth, will only lead to more inflation and weakening of Dollar, and so if the Gold Stand