Types of gold standards with their characteristics

With the growing awareness of gold investing, investors and the general public are increasingly interested in knowing more about the origins, history, gold standards, etc. precious metals to better understand the market and make informed decisions about their investment.

Historically, gold standards have taken different forms such as:

1. Gold coin standards

2. Gold bullion standards

3. Gold Exchange Standards

4. Gold Reserve Standard

5. Gold parity standards

1. Gold coin standards

The gold coin standard is also known as gold coinage standard and gold specie standard. It is the oldest form of gold standard which is also known as traditional gold standard or orthodox gold standard. Before the First World War, this standard was widespread in Germany, France, the United Kingdom and the United States.

Under this standard, complete full-body standard coins have been released and hence they are also considered the full gold standard.

Features of gold coin standards:

• The monetary unit of the standard is conceived in terms of gold.
• Token coins, paper money and other forms of money are also in circulation. But they are convertible into gold.
• Free unlimited mint and smelt of gold coins.

2. Gold bullion standard

After the First World War, based on gold bars, the gold standard was revived in some countries in Europe. In 1925 Britain adopted it and it was modified into the gold coin standard version. After that, the currency was convertible into gold bullion and there was no more gold currency.

Features of Gold Bullion Standard

• The standard monetary unit is defined in terms of quantifying gold of a given purity and gold coins are not in circulation. Thus, gold remains a measure of value but not a medium of exchange.
• People cannot convert their gold into coins because currency is not allowed.
• The government guarantees full convertibility of currency into gold bullion and other forms of currency are not fully backed by gold reserves.

3. Gold Exchange Standard

According to the Gold Exchange Standards, gold currency was not in circulation, nor were gold reserves held for external purposes. Gold was only converted into the currency of certain foreign payments and, for national purposes, gold was not converted to meet internal needs.

Features of Gold Exchange Standard

• Gold coins are not in circulation. National currency includes only paper money and token coins.
• Foreign currencies and bills, as well as gold, constitute the reserve base of the country
• No direct link between gold reserves and the volume of the national currency.

4. Gold Reserve Standard

In 1936, the Gold Reserve Standard was developed as a new monetary system after the collapse of the gold standard. It was formed to ensure exchange rate stability. To stabilize the exchange rate and promote foreign trade without affecting the value of the national currency, Britain, France and the United States entered into a tripartite monetary agreement. It remained successfully operational for three years and came to an end after the outbreak of World War II.

Features of Gold Reserve Standard

• Gold was used neither as a measure of value nor as a medium of exchange. Nor was the convertibility of gold assured.
• Individuals were not allowed to import and export gold. It is only traded for monetary purposes.
• Without disturbing the internal economy of the country, the stability of the exchange rate is achieved

5. Gold parity standard

The gold parity standard is considered to be the modern version of the gold standard which came into effect in 1946 with the creation of the IMF or the International Monetary Fund. Under the system, to determine the exchange rate for gold, each member country must define the face value of its currency.

Characteristics of gold parity standards

• To determine exchange rates for foreign transactions, each country must define the nominal value of its currency in terms of gold
• According to these standards, gold cannot be a measure of value or a medium of exchange. The national currency is inconvertible into foreign currencies, gold coins or gold bars
• According to this standard, the monetary policy of one country has no direct or indirect link with that of another country.

The essential

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