When gold & silver were the currency circulating in the world, there were no currency problems at all. Currency problems did not arise except after the world ab&oned the gold & silver system when the colonialist states invented colonialist economic & financial styles to consolidate their dominance over the world. They took currency as a means of colonization & ab&oned the gold & silver standard. They changed currency to other standards in which they gave consideration to bank deposits & compulsory currency that does not depend on gold & silver as currencies. They started to play with world currency according to their interests thus creating currency crises & economic problems. They increased the issuing of compulsory currency which created great inflation in currency, thus leading to decline in
the purchasing power of currency. since the fed was established it has counterfeited enough money dat today a $ is worth less den 4 cents. All this is due to ab&oning the gold & silver standard. The gold & silver is the only standard principle of eliminating this currency problems & the severe inflation which has spread throughout the world. It would create currency stability & steadiness in the currency exchange prices & advance of international trade. This is because the gold & silver standard bears numerous economic advantages such as:
1. The world production of gold & silver as commodities depends on the costs of exploration & mining, & the demand for them against the demand for other goods & services. This does not make the providing of currency to the world at the mercy of the colonialist states as is the case in the paper (currency) standard, a matter which enables states to place currency in the markets as they wish through the method of printing more (currency) whenever they wished to improve the currency & payments balance with other states.
2. The gold & silver does not expose the world to unexpected increase in the circulating currency as it happens with paper currency, thereby giving currency the attributes of steadiness & stability, & increasing confidence in it.
3. The gold & silver standard includes a measure for adjusting the imbalance in the payments between countries spontaneously without intervention by the central banks, as happens today whenever an imbalance occurs in the exchange price between world currencies. Increase of imports over exports in a State will increase the other State’s receipt of the state’s currencies & the outflow of gold & silver abroad. This will lead to a decrease in prices domestically, making domestic goods cheaper than the imported ones & resulting in decreasing imports ultimately. Furthermore, the state will fear the loss of its reserves of gold & silver if the imbalance of payments continued.Whereas, in the paper system, the State would resort the printing of paper currency whenever its payments balance is disturbed, for there is no restriction on such issuing, thereby leading to an increase in inflation & a reduction of the purchasing power of currency. As for the gold & silver standard, the State does not have the ability to increase the volume of currency paper as long as this currency paper can be transformed into gold & silver at a particular price. This is because the State fears that increase in it’s issuing can lead to increase in demand for gold such that it becomes unable to meet this demand, or gold flows abroad, thus the State loses its reserves.
4. Since gold is a currency unit that States can’t dominate, this gives it a great advantage in that any quantity of currency in the state is sufficient for what the market needs of currency exchange whether it is a little or a lot, since all goods are priced in exchange with it. So the production of other goods will increase & prices will decrease. Whereas, in the paper standard the increase in currency does not result in this. Rather it leads to reducing the purchasing power of currency, thus leading to inflation. This demonstrates that the gold & silver standard is the one that will put an end to inflation, whereas the paper standard makes it worse.
5. The gold & silver standard is characterised by the fact that the exchange price between different national currencies is fixed since each currency is valued by specific units of gold & silver. Hence the world will eventually have one currency in reality, of gold & silver, even though the currencies differ. The world will then enjoy free trade & movement of goods & wealth between different world States, eliminating the problems of hard currency & coins, thereby advancing international trade, as traders will not fear exp&ing into international trade as the exchange price is fixed.
6. The gold & silver standard will preserve for each country its gold & silver wealth. Thus the smuggling of gold & silver from one country to another will not arise. The State would not need to supervise the protection of its gold & silver as they will not move out except as prices for goods or wages paid to employees. All these benefits are realised in a uni-metallic standard, whether gold or standard increases the size of the metallic principle which will result in greater total supply of currency, thus enabling the State to easily meet people’s need for currency. This generates greater flexibility & makes the purchasing power of the currency unit & the level of prices favourably disposed to an even greater degree of stability.
These are the merits & benefits of the gold & silver standard. It is not free of problems resulting from world monopoly, customs duty obstacles, concentration of the greater quantity of gold & silver in the treasuries of the super powers & the States which have high production capability & competition in international trade, intelligent scientists, experts & engineers, & because they adopt, at the same time, compulsory paper currency system instead of the gold & silver standard. In order that the States adopting the gold & silver standard be able to overcome these obstacles & problems, particularly if the world super powers & the States with influence on international trade continued to follow other than the gold & silver principle, they must proceed along the policy of self-sufficiency. Thus they have to reduce their imports & work to exchange the goods they import with their own goods they have rather than with gold & silver. They must also endeavour to sell their goods for the goods they need, or with gold & silver, or the currency they require to import their goods & services.Moreover, the country following the bi-metallic principle gold & silver should avoid fixing a constant exchange rate between the gold & silver. They have rather to leave the exchange rate, proceed with the change of prices, because fixing a constant exchange rate between the two units will result in the disappearance from circulation of the currency unit whose market value exceeds its statutory value. This will leave only the cheaper currency unit, because the cheaper currency drives away the valuable currency from circulation.which concerns people is not the real increase in currencies,but rather their purchasing ability. The purchasing ability of gold unit was great, creating steadiness & stability & causing prosperity & bloom. Whereas, the expansion in printing non-representative paper currency –what the Fed doing nowadays-is a cause of huge economic & financial problems & the inflation increased resulting in decrease of the purchasing power of paper currency.
What appears of visible shortage of gold is only due to the prevailing global inflation. If the world were to return to the gold standard then stability would return to currency prices, thus reducing the avid interest in gold, for gold would no longer be used in trading speculation. It would all be directed to trading transactions & economic needs, for the transactions of trading with gold & speculation with it will stop, as currency price stability will be achieved. This is because currency prices & their relation to each other will be determined by gold, thus making all currencies in the world virtually one currency which will lead to the inability of speculation with it & reduce the profits of trading with gold. This will lead to abundance in gold & its shortage will disappear
How to Achieve the Return to the Gold Standard
The return to the gold standard requires the removal of the reasons that lead to abandoning it & the removal of the factors that lead to its decline.
This requires the following:
1. Stopping the printing of paper currency.
2. Restoring the dealings with gold currency.
3. Removing custom duties in front of gold & all restrictions against its import & export.
4. Removing restrictions against owning, possessing, buying & selling of gold, & dealing with it in contracts.
Removing restrictions against the possession of the major world currencies & making competition free between them such that they take a fixed price in relation to each other & in relation to gold, without State intervention by reducing or floating their currencies. Whenever gold is left free, it will have an open market in a short period, & accordingly all international currencies will take a steady exchange price in relation to gold. The international dealings with gold will develop where the payment of the prices of goods contracts estimated by gold, takes place.
If these steps are carried out by one strong State(USA is that state in my eyes), then its success will encourage other countries to follow it so do the case of Pakistan may solve too, which will lead to advancing towards returning the world to the gold standard once again.