Introduction
From the historical perspective, gold has been considered the most prevalent exchange medium, shaping the long-established gold standard monetary system. The gold standard currency structure implies the direct linkage between gold and the currency’s value. Therefore, the fixed price of gold established by a country defines the national monetary worth. Moreover, such a financial concept established a fixed pattern of currency exchange rates. With this said, learning about the gold standard economic system within a modern financial climate can clarify the new changing approaches to managing currency and even implementing cryptocurrency.
Summary of Researched Articles
Lewis, Nathan. “What If We Had A Gold Standard System, Right Now?” Forbes. 2020
Nathan Lewis investigates the implication of the gold standard approach in the current financial system. Based on the economist logic, the gold standard monetary system is regarded as a disaster resulting in the leading position of the United States globally. It appears to be quite debatable to integrate this system in modern times of economic and financial unrest. Most importantly, the author examines the feasibility of the gold standard system amidst the COVID-19 pandemic and economic turmoil. Lewis states that a gold standard system is “a fixed-value system,” wherein gold proves to be more stable compared to the dollar or euro. According to the article, the Federal Reserve could maintain the gold standard under the two key tasks: expanding the monetary base and extending loans to particular entities retaining the currency’s value at its gold equivalence. Summing up, the floating currencies within a modern financial circuit can be justified and feasible as well as with a gold standard system.
Cochrane, John H. “Forget the Gold Standard and Make the Dollar Stable Again.” The Wall Street Journal. 2019
The second article represents an opposing view on the gold standard monetary system and its impracticability in terms of global financial management today. Cochrane asserts that the gold standard is not a feasible measure in the twenty-first century monetary and financial system. However, the government can acquire its beneficial features without actual reinforcement of the gold standard. The gold possesses no exceptional value rather than being jewelry and providing industrial uses; a gold standard was merely a “fiscal commitment” (Cochrane). The current U.S. government could implement a financial policy emulating the positive features of the gold standard. This implies the “maintained price stability and fixed consumer-price index, restricted fiscal policy and monetary policy, and trading gold for notes in present financial markets” (Cochrane). The author concludes that a return to the gold standard approach is unfeasible based on the existing inflation and deflation rates and fiscal commitments.
Textbook Connection
Wild also examines the two sides of the gold standard monetary structure regarding the fixed exchange rate systems. It is essential to understand that the factors determining the exchange rates vary across different global economies and adjust to varying inflation rates. Similar to Lewis and Cochrane, Wild defines the positive features of the gold standard, including “reduced the risk in exchange rates, imposed strict monetary policies, and restored nation’s trade imbalance” (288). In addition, the textbook indicates the damaging impact of this monetary system, including high inflation. Therefore, many international economies incorporated competitive devaluations to reinforce their trade balances. Hence, both the articles and the textbook emphasize the gold standard’s unfeasibility in the modern approach to maintaining the global financial system.
Evaluation and Conclusion
Understanding the gold standard system is crucial to learning its contribution to restraining the governments’ authority in causing price inflation and promoting international trade assurance. The analyzed articles demonstrate different considerations about the gold standard system; however, they highlight the uncertain and unstable functioning of such a monetary system. Congress put significant efforts to supply funds to guarantee business lending and maintained financial calm. However, the gold standard system would lead to increased inflation, causing a fiscal tightening. Therefore, the gold standard would negatively impact the current business environment and undermine international financial policy.
Works Cited
Cochrane, John H. “Forget the Gold Standard and Make the Dollar Stable Again.” The Wall Street Journal. 2019. Web.
Lewis, Nathan. “What If We Had A Gold Standard System, Right Now?” Forbes. 2020. Web.
Wild, John, and Kenneth Wild. International Business: The Challenges of Globalization (What’s New in Management). 9th ed., Pearson.