The use of gold reserves as the backing of a country’s currency. This system requires that these currencies be freely convertible into gold at a fixed price, and that the country use gold to settle all its international trade transactions. Its major flaw is that it reduces a government’s ability to manage its money supply, and makes a healthy economy highly dependent on its trading partners conditions of inflation or depression . This prevents this system from working well in controlling inflation or maintaining a trade balance in international transactions. gold standard existed between 1900 and 1914 for the world’s major economic powers . World War 1 (1914-18) crushed this forcing all save the US to abandon the standard in 1931 during the Great Depression (1930-40). The US abandoned it in 1971. Today, all use the floating exchange rate system, the international monetary system .
Black’s Law Online Dictionary
