By Tinos Jujuju
WHEN confronted with challenges, every epoch seek solutions and their approach, successes or failures would be of reference by coming generations when faced with other challenges whether similar or not.
With globalization comes the interdependence of economies and therefore, generations are faced with the realities and requirements to prescribe measures or suggest possible remedies. The International gold standard was one of the standard which was used in international trade among countries, and ended due to evolving human actions. Would the gold standard be of value to contemporary challenges on weak economies?
According Marxist scholars, the gold standard period, was the period when gold was used as the commodity which performed the measure of value of general equivalency -the standard expression of value of prices. Gold was then used as the standard measure of value in international trade.
The use of paper money, coins were all dependent on the gold reserves of a country. Weighing between the merits and demerits of the gold standard, one would then infer whether it would be beneficial to revive the gold standard or pick some aspects and concept of it and be adopted as providing a panacea to weak economies.
The Gold standard’s two major functions are to regulate the volume of currency as an internal control of currency and to maintain the exchange rate which is an external control measure amongst gold standard countries.an important point in regulating the exchange rate includes the unlimited movement and flow of gold.
These functions are to be firmed on some principles for it to function well. These include that there shall be free movement of gold, elastic money based on gold reserves, there shall be a flexible pricing system, free movement of goods and there shall not be speculative capital movements.
Furthermore gold standard countries are to ensure that there is proper distribution of gold and gold standard countries are to strive to avoid international indebtedness.
In that regard the gold standard countries would be set have price stability and exchange stability which are important for a stable economy.
The gold standard is based on a fair weather concept, suggesting that it yields planned results when all parties satisfy their roles perfectly .It’s not workable in war situation and the Hobbesian international system. This is the basis for its collapse during First World War.
Furthermore, the standard is not simple to be understood by common man whereas it deals with a special metal which is scarce, not easily accessible to other countries which triggers insincerity in other gold standard countries in pursuance of self-interests particularly toward in protection of the capital and finance systems and ensuring balance of payments and equilibrium in trade.
Most countries in the gold standard would at most favor internal domestic price stability as inflation and deflation are their tools to a balance of payment.
The gold standard requires that there be reliance and coordination amongst gold standard countries. The reliance which, in Hobbesian terms is difficult to attain, but fruitful if done in principle.
Developing countries, if they adopt a collective approach may benefit to the standard, but it pursues a policy of self-sufficiency, it would struggle to benefit from the gold standard.
In contemporary international political economy, it is important to analyses the causes of the demise of the gold standard and adopt its principles as injunctions to weak and falling economies. The major causes of its end were incessant wars, lack of cooperation, great depression, political instability and lack of a monetary center.
Therefore, to overcome the gold standard weaknesses and its revival, or at least adoption of its principles, it calls for willingness on those in public offices, internationally, to adopt the principles in order to manage the international finance and economics whilst maintaining international cooperation among states those in the central banks and those in charge of managing finance and capital economy to use gold standard principles to manage inflation and stabilize their economies.
States are to enhance free trade as an ingredient of the gold standard. Furthermore, regional currencies, trade, and indebtedness amongst states are to be managed using the gold standard principles which suggests to prescriptions for weak economies to manage their economies towards stability and promote development and social life of their people.
- About the author: Tinos Jujuju is a student of Masters in Politics and International Relations at the University of Zimbabwe.
- Tinos can be contacted on: email@example.com ■