Gold Standard

The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of Gold. http://en.wikipedia.org/wiki/Gold_standard

international standard adoption

• 1816: UK
• 1873: Germany, US, others

Germany had gone off the gold standard in 1914, and could not effectively return to it because war reparations had cost it much of its gold reserves. A number of other countries (other than the US) left the gold standard during the war. Most of them returned over a period of time after.

Factor/actions ending it:

• After the Second World War, a system similar to a gold standard and sometimes described as a "gold exchange standard" was established by the Bretton Woods Agreements. Under this system, many countries fixed their exchange rates relative to the U.S. dollar and central banks could exchange dollar holdings into gold at the official exchange rate of $35 per ounce; this option was not available to firms or individuals. All currencies pegged to the dollar thereby had a fixed value in terms of gold.[19] Since private parties could not exchange gold at the official rate, market prices fluctuated. Large jumps in the market price 1960 lead to the creation of the London Gold Pool.
• Starting in the 1959–1969 administration of President Charles de Gaulle and continuing until 1970, France reduced its dollar reserves, exchanging them for gold at the official exchange rate, reducing U.S. economic influence. This, along with the fiscal strain of federal expenditures (federal deficit) for the Vietnam War and persistent balance of payments/trade deficits, led U.S. President Richard Nixon to end international convertibility of the U.S. dollar to gold on August 15, 1971 (the "Nixon Shock").
• This was meant to be a temporary measure, with the gold price of the dollar and the official rate of exchanges remaining constant. Revaluing currencies was the main purpose of this plan. No official revaluation or redemption occurred. The dollar subsequently floated. In December 1971, the "Smithsonian Agreement" was reached. In this agreement, the dollar was devalued from $35 per troy ounce of gold to $38. Other countries' currencies appreciated. However, gold convertibility did not resume. In October 1973, the price was raised to $42.22. Once again, the devaluation was insufficient. Within two weeks of the second devaluation the dollar was left to float. The $42.22 par value was made official in September 1973, long after it had been abandoned in practice. In October 1976, the government officially changed the definition of the dollar; references to gold were removed from statutes. From this point, the international monetary system was made of pure fiat money. However, gold has persisted as a significant reserve asset since the collapse of the classical gold standard.