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Foreign Exchange Markets Summary Essay

1082 words - 5 pages

The functions of the gold standard was to give the worth of a countries currency a true measurement of its worth. The countries participating would measure their currency against the worth of gold. Since gold was highly sought-after, it was a fair measurement of how a currency would hold its value. The gold standard came and went, over a matter of 100 years and is no longer used today. Arguments have been made for the return of the gold standard, to no avail the fall out in the late 1970’s still carries its weight. After World War II, the Bretton Woods agreement controlled the European and American economy, with the intentions of repairing damage after the war. Eventually, the strategy ...view middle of the document...

Without the standard, many countries would not have had a way of measuring the worth of their currency. Accordingly, the value of currency would go up and down with the supply and demand aspect of currency and exchange rate. To avoid inflation, countries were not permitted to print more money against the worth of gold.
There were positive and negative aspects of the gold standard. For example, one positive aspect would be that participating government could not print money that was not supported by the price of gold, keeping the integrity of its worth. Money would also be able to be traded for gold should gold enter a monetary transaction, because gold carries the same worth as cash. A negative aspect would be that the economic growth of a country is only as strong as the amount of its gold supply. Gold is not easily stored, and since it is a heavy metal currency would far exceed storing capacity but would only be worth the amount that is backed by gold.
However, today’s currency is handled differently from the gold standard of the 1800 to late 1900’s. Today currency is measured according to the supply and demand aspect of the economy. If the U.S. dollar is greatly sought-after, in return the dollar will raise in value. This concept goes for any country as well. Changes in the economy will also affect any currency through inflation. If a purchase is made one year and the next year the same item is sold for more, it will cause the currency to be worth less because the purchaser is getting less for the same item that would have been purchased a year ago at a lesser price.
Additionally, the United States and Britain “met at Bretton Woods, New Hampshire, to plan for the future” (University of Phoenix, 2005). The International Monetary Fund was born and from 1945 to 1971 a standard for currency was established with the intentions of rebuilding ravaged European nations and economies, damaged by World War II. France, Great Britain, and the United States were involved in the efforts of repairing and with hopes of creating an environment for economical peace for which all countries...

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