Historical Timeline

• 1717: Sir Isaac Newton, as Master of the Royal Mint, set the gold price at £3 17s 10½d per troy ounce — de facto establishing Britain's gold standard
• 1821: Britain officially adopted the gold standard. Over the following decades, most major economies followed
• 1870s–1914 (Classical Gold Standard): The golden era of fixed exchange rates. Most industrialized nations pegged their currencies to gold. 1 USD = 20.67 USD/oz. Enabled remarkable price stability and international trade growth
• 1914–1918: WWI forced most nations to suspend gold convertibility to finance war expenditures
• 1925–1931 (Gold Exchange Standard): Britain returned to gold in 1925 at pre-war parity (Churchill's controversial decision). The unsustainable overvaluation contributed to deflation and Britain abandoned gold in September 1931
• 1944–1971 (Bretton Woods System): 44 nations agreed to peg their currencies to the U.S. dollar, which was convertible to gold at $35/oz. The U.S. held ~75% of the world's monetary gold (~20,000 tonnes) at Fort Knox
• August 15, 1971 (Nixon Shock): President Nixon suspended dollar-gold convertibility, effectively ending the gold standard era. By this time, U.S. gold reserves had fallen to ~8,100 tonnes while dollar liabilities far exceeded gold backing

Arguments For the Gold Standard

• Natural constraint on money supply prevents excessive inflation
• Forces fiscal discipline on governments
• Provides fixed exchange rates facilitating international trade

Arguments Against

• Deflationary bias — economic growth constrained by gold supply
• Pro-cyclical: gold outflows during recessions tighten money supply when expansion is needed
• Countries with gold mines (South Africa, Russia) gain disproportionate monetary influence
• Cannot respond to financial crises — no lender of last resort flexibility

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