Understanding The Gold Standard
The gold standard refers to the use of gold as the "insurance" to back what a country's paper currency was actually worth - if there was no physical asset to support the value of the paper, well, the dollar bill in your wallet was worth just that - paper. The gold standard has been in use in one form or another since the earliest days of coinage when rulers minted coins and the value of a coin was the intrinsic value of the gold or other precious metal contained within it. Stamping the head and name of the king or emperor whose treasury issued the coinage was not just a political statement as to who was boss, but also a symbol of quality control - you have one of my coins, I am saying it has this much gold included in it!
Pirates operating in the Caribbean raided Spanish treasure ships taking gold cargo back to the Old World - the problem was that their ill-gotten gains were too large a denomination to spend, especially when it came time to settling their bar tabs. As the gold was in a form which meant uniform purity and weight, the pirates and landlords of the inns they frequented would break the large standard gold coins up in to eight pieces - this is the origin of the pirate phrase, "Pieces of Eight".
In the middle of the Second World War, the Allies and most everyone else who was not on the German/Japanese side, met and thrashed out the Bretton Woods Agreement which laid out the financial foundations for the world for after the hostilities. Underpinning every country's currency was a tie to a "gold standard" - and within the range that was established a country could only issue so much currency in relation to its gold reserves. This arrangement continued until 1971 when gold lost its luster and Black Gold - oil - replaced it as the effective asset backing many of the world's currencies including the US Dollar.
The need for gold to support the "real" value of the paper currency issued meant that country's had to accumulate and maintain bullion reserves of gold. You may remember the James Bond film, Goldfinger and an audacious plot to raid Fort Knox in Kentucky. Though it was a fictional film, Fort Knox is certainly not and along with the Federal Reserve Bank in New York, the US maintains enormous gold reserves required to support the US dollar - but it is not only the US that stores gold at these locations, friendly countries with close trading ties also maintain their gold reserves at these locations to, and while the gold standard does not apply as it once did, these reserves of gold bullion still play an enormous part in the global economy and how nations do business with each other.
The last country to be tied to the gold standard was Switzerland who dropped the standard in 1999, but after the recent economic upheaval and the almost total, global banking collapse, there are renewed calls for the gold standard to be re-introduced once again. - 23217
Pirates operating in the Caribbean raided Spanish treasure ships taking gold cargo back to the Old World - the problem was that their ill-gotten gains were too large a denomination to spend, especially when it came time to settling their bar tabs. As the gold was in a form which meant uniform purity and weight, the pirates and landlords of the inns they frequented would break the large standard gold coins up in to eight pieces - this is the origin of the pirate phrase, "Pieces of Eight".
In the middle of the Second World War, the Allies and most everyone else who was not on the German/Japanese side, met and thrashed out the Bretton Woods Agreement which laid out the financial foundations for the world for after the hostilities. Underpinning every country's currency was a tie to a "gold standard" - and within the range that was established a country could only issue so much currency in relation to its gold reserves. This arrangement continued until 1971 when gold lost its luster and Black Gold - oil - replaced it as the effective asset backing many of the world's currencies including the US Dollar.
The need for gold to support the "real" value of the paper currency issued meant that country's had to accumulate and maintain bullion reserves of gold. You may remember the James Bond film, Goldfinger and an audacious plot to raid Fort Knox in Kentucky. Though it was a fictional film, Fort Knox is certainly not and along with the Federal Reserve Bank in New York, the US maintains enormous gold reserves required to support the US dollar - but it is not only the US that stores gold at these locations, friendly countries with close trading ties also maintain their gold reserves at these locations to, and while the gold standard does not apply as it once did, these reserves of gold bullion still play an enormous part in the global economy and how nations do business with each other.
The last country to be tied to the gold standard was Switzerland who dropped the standard in 1999, but after the recent economic upheaval and the almost total, global banking collapse, there are renewed calls for the gold standard to be re-introduced once again. - 23217
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