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INTERNATIONAL FINANCE: Gold Standard - Essay Example

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In the early 1930’s the monetary system was gold standard, this was the era in which the greatest catastrophe to ever occur in the economic…
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Download file to see previous pages... Gold standard had been outlined as outstanding monetary system that would guarantee stable prices and minimum government intervention. As international financial system it provided stability of exchange rate throughout the world. The stability offered by the monetary system encouraged foreign investment thus making countries such as France and Britain to invest much of their resources abroad thus leading to the expansion of the international economy. The advantage of the gold standard was that government could not manipulate currencies through devaluation so as to encourage exportation. In addition they could not stimulate the domestic demand since the countries adopting the gold standard lacked the capability of expanding the money supply. Therefore, the only way was to cost of production through reduction of wages (Eichengreen and Temin 12).
Gold was viewed as civilized since the government was able to control amount of gold in circulation, through selling and buying gold at fixed price. This act by the government created discipline in the market, thus promoting economic stability.
Until today the great depression has remained a riddle to many economic and history scholars they have regard the 1930, as greatest unresolved mystery, since economist fail to provide a logical explanation on the mystery of great depression. Some scholars argue that, when states were formulating policies and procedures so as to adapt the gold standard system in the late 1920’s, their actions led to economic distress later in the 1930’s. During this era this was both political and social pressure discouraging the abandonment of this monetary system but this policies and procedures did not match the requirements of the economies (Eichengreen and Temin 25).
The rigidity of these policies and procedures and institutions created in the adoption period constrained the central banks and government to adopt measures that could resolve the adversity experienced. Any efforts by ...Download file to see next pagesRead More
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