Healthy Shade: Causes of Failure of Gold Standard

In Elastic Supply of Gold

The population grew rapidly, economic expanded demand for gold rose up, and gold mine could not supply enough of gold to meet the rising demand. 

In Elastic Economy

An elastic economy is the basic conditions of the working of a gold standard. Economics was no free after First World War. The developed country like Germany and U.S.A adopted protection policy to develop an industry. The developing country introduced license and Quota system. They also adopted exchange control to check imports and export, the balance of payment. These worth of hurdles in the free working of this system.

Movement of Gold

Free inflow and outflow of gold is another basic condition of this system. Many developing countries did not follow this practice. USA and France demand gold as reparation interim of gold after the First World War 3.25 of the world gold assembled in these two countries. They dump this gold. They did not inflate their currency. The rest of the world war had not enough of gold to run this system. Thus gold standard broke down.

Abnormal Condition

Gold standard functions in normal condition only. It does not function well in abnormal conditions like wars, political crises, and economic depression. The First World War and fit outfall, the changing political position of the world and the great economic depression in 1929 were the main causes of the failure of the gold standard. Thus this standard broke down in the world in 1930
Why Gold Standard Broke Down In the World

Gold Standard

When gold determined the value of goods and services and place a vital role in all types of transaction. It is called gold standard. The following rules observe in the gold standard. 

Rules of Gold Standards

Currency

All the coins are made of gold. They full-bodied coin. Paper money is fully convertible into gold for all types of payment.

Movement of Gold

Inflow and outflow of gold are allowed. Payment can be made in titles to trade (bill of exchange, drafts etc) as well as gold. Govt. does not put any check on the movement of gold.

Co-Relation between Quantity Gold and Quantity of Money

The Quantity of gold is converted into gold coin are an equal amount of paper currency is issued. The government does not dump any gold. In case of inflow of gold quantity of money is inflation. In case of outflow of gold, the quantity of money deflated.

Free Flexible Economy

An economy is free all the checks. The Govt. does not interfere in the economic life of the people. In case of inflow of gold and the expansion of money, the price of goods and services must rise accordingly vice versa.

Free Trade

Import and export must be free of all the licenses, Quotas, exchange, control tariff (customs duty).

In case of gold bullion standard taken coins circulate. Paper currency is not convertible into gold for internal payments. It is convertible into gold for external payment only with some restriction. A quantity of gold supports the quantity of money. An inflow of gold is allowed economy is free and international trade is without checks. The central bank buys and sells gold at the official rate. Bank of England bought gold at 3 pounds seventeen shillings 9.5 pence per ounce. In the gold exchange standard, gold place no direct role in any transaction. There are taken coin paper money is not convertible. Paper money can be converted into the currency of a country which is on a gold standard. The Indian rupee was taken a coin. Paper money was not convertible to gold. Even the Indian rupee could be converted into pounds sterling which was on a gold standard. In this way, Indian had gold exchange standard.