On this basis it is worth looking at the background to the
value story on gold, and this may shed some light on why its bull market may
have significantly further to go for CFD traders in coming years air penny 5.The gold standardThe UK,
which at the time was the worlds dominant economic powerhouse, adopted a gold
standard in the early 19th century.
Other currencies then looked to have
gold backing, and towards the end of the century, various European countries
joined the standard, though some chose for a time use a joint gold and silver
standard Nike Heels. The emerging
strength of the US saw it adopt the standard in 1879, by making "greenbacks"
that had been issued during the Civil War period convertible into gold, and the
gold standard was formalised by legislation in 1900.
On the outbreak of
World War One, it was accepted by the whole of the developed world Nike Zoom Kobe. This called for
fixed exchange rates, with parities set for participating currencies in terms of
gold, and it provided that any paper currency could on demand be exchanged for
gold by its central bankThe system worked well having been designed to make each
country adjust in terms of external deficits or surpluses in transactions
between countries.
Any deficit country would then have to surrender gold
to cover its deficit, with the result that the volume of its money would be
reduced, leading to lower prices, while the influx of that gold into the surplus
economy would expand the volume of that countrys money and lead to higher prices
nike dunk 6.0.This meant that there
were effective pegs in the foreign exchange market, so that exchange rates would
fluctuate only within very narrow limits determined by the costs of shipping and
insuring gold.
US and UK comparisons in terms of goldUp until 1914, the
parity between the U.S. dollar and sterling was approximately $4.87, based on a
U.S. official gold price of $20.67 per ounce and a U.K. official gold price of ￡
4.24 per ounce, and the exchange rate would not fluctuate beyond about three
cents above and below the mint parity, which represented the cost of shipping
and insuring gold, since otherwise there would be arbitrage potential.Although
there were some gold transfers under the system, it was easier to adjust
monetary policy to attract currencies, which might offset the financial impact
of any import excess. Higher interest rates would usually have a deflationary
effect in the deficit country aswell.Under this system, participating countries
needed to give an absolute priority to external adjustment over domestic
objectives, so if there was a conflict between domestic and external objectives,
policy tools might not be available to be used for domestic problems of
recession, unemployment, or inflation. This reflected the prevailing economic
philosophy that economies would tend naturally toward reasonably high levels of
employment and reasonable price stability without such government policy
actions.The effect of the First World WarThe four great economic powers, the US,
UK, Germany, and France saw unchanged currency values up until the war. There
were few barriers to gold shipments or capital controls in the major countries,
and capital flows appeared to play a stabilising role. After the outbreak of the
First World War, each country needed to raise cash for the war effort, and at
this stage they began to issue more and more bonds, some of which still exist
today. These were domestically issued at the time and not backed by gold, but
the promise to repay came from the central bank and was seen as rock solid. This
was the beginning of what is known as fiat monetary policy, and which is
widespread today.The result of this was that as more and more paper was not
backed by the common value of gold, floating exchange rates began. The US, which
entered the war later than the others, had maintained gold convertibility, and
soon the dollar floated against the other currencies, which were no longer
convertible into dollars. Dollar strength and weaknessOnce the war ended there
were significant economic problems in Europe, and exchange rates began to change
rapidly, with many major currencies devaluing against the dollar.This helped
cement the US dominance of world trade, as the dollar had greatly improved its
competitive strength over European currencies during the war.In a reverse of
what is happening today, within much of Europe and certainly in the UK there was
a widespread desire to return to the stability of the gold standard, and growing
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