Gold standard

The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold.

Under the gold standard, currency issuers guarantee to redeem notes, upon demand, in that amount of gold. Governments that employ such a fixed unit of account, and which will redeem their notes to other governments in gold, share a fixed-currency relationship.

Supporters of the gold standard claim it is more resistant to credit and debt expansion. Unlike a fiat currency, the money backed by gold cannot be created arbitrarily by government action just by printing banknotes. This restraint prevents artificial inflation by the devaluation of currency. This is supposed to remove "currency uncertainty," keep the credit of the issuing monetary authority sound, and encourage lending. Nevertheless, countries under a not truly 100% gold standard, like countries simultaneously using manipulated paper currencies, underwent debt crises and depressions throughout the history of its use with the Central Bank manipulation and inflation of the currency as the U.S. experienced in its Panic of 1819 after its Second National Bank was chartered in 1816.

The gold standard is no longer used in any nation, having been replaced completely by fiat currency. However, it is still in use by some private institutions.