Should the US Move towards the Gold Standard?

Should the US Move towards the Gold Standard?

The Gold Standard

Mr. Bernanke is entirely right about the return of the Gold Standard, as it was implemented then could not work now. In its day, it was appropriate and worked well for many years, but the circumstances it worked in changed. The system did not change with those changes. Bear in mind that the world was at a stage where it believed in gold as the only money that one could trust. That's why governments and their central banks issued notes against it and not un-backed currencies. The notes represented an amount of gold that could be trusted. Of themselves government notes represented not governments but their gold (Rose 2000).

The Gold Standard is a historic monetary system in which the standard unit of account is a fixed weight of gold, and though the main benefit is that it insures a relatively low level of inflation, economies on the gold standard are less able to avoid or offset either monetary or real shocks. The gold standard was created to maintain stability between nations and as means to standardize transactions; it presented much advantageous, i.e. lowering inflation and creating a form of equality. However, the stability caused by the gold standard could have also been to its demise. Under the gold standard system not all nations were created equal in terms of having gold as a resource. When one country was doing poorly due to lack of gold, it affected others as well. Through the years countries, such as the U.S, chose to abandon the gold standard because it did not present them with the opportunity to stimulate their economy during tough economic times. Nonetheless, the gold standard worked quite well when governments throughout the world worked together to trade with the “gold” standard, seeming there was always an ample supply of gold for the size of the world economy. However, the gold standard worked poorly during times of hardship and money shortages. Therefore, governments began to seek new forms of monetary policy. Based on the above discussion I suggest that US should move towards Gold standards.

Protection from Excahnge Rate risk

It can be difficult to predict currency movements, however by considering the below strategies the person can identify ways to minimise the risk involved to give you the best chance of maximising the profit from international trade.

Forward Exchange Contracts and Options

Take the prize money and put it into the bank and focus to get a Forward Exchange Contract for specific exchange rate at a future date. Once agreed any future changes in the exchange rate will not impact the amount you have kept in the bank helping you to better manage your cash flow.

A Forward Exchange Option is similar to an Exchange Contract. The key difference being an Option caps the exchange rate against unfavourable currency movements, but allows you to take advantage of any favourable movements in currency.

Foreign Currency Account

This enables you to hold money in ...