Encyclopedia of Investment Terminology

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Gold Standard

The Gold Standard is a system in which a given weight of gold is said to be an economic unit of account. Three different kinds of Gold Standards exist, they are: The Gold Specie Standard, The Gold Exchange Standard, and the Gold Bullion Standard.

Under the Gold Specie Standard a currency is fixed to circulating gold coins.

The Gold Exchange Standard gives a fixed value to circulating coins made of metals other than gold. Silver coins may be valued in gold independently of the price of gold.

Under the Gold Bullion Standard there is no actual gold circulating, instead the government agrees to sell bullions on demand at a pre determined price.

The Gold Standard allowed the trade of paper money backed by actual gold in bank reserves, without having to actually exchange gold, or gold coins. Since the amount of gold in the world is limited, and due to the continuous growth of global economies the amount of gold available was not enough to back all the paper currency circulating, for which the Gold Standard was abandoned. The last country to abandon the gold standard was Switzerland in 1999.

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