The gold standard is the crucial link in this virtuous circle. It allows kind of the financing of trade, and it allows that kind of settlement to happen a little bit more easily. The bank of england borrowed gold from the bonc de france to help it out during that financial crisis. In practical terms, international trade was really financed through the city of london and settled in pounds sterling,. And there was so much credibility, so much faith in the convertibility at the fixed gold value for the pound sterling.
Melvyn Bragg and guests discuss the system that flourished from 1870 when gold became dominant and more widely available, following gold rushes in California and Australia. Banknotes could be exchanged for gold at central banks, the coins in circulation could be gold (as with the sovereign in the image above, initially worth £1), gold could be freely imported and exported, and many national currencies around the world were tied to gold and so to each other. The idea began in Britain, where sterling was seen as good as gold, and when other countries rushed to the Gold Standard the confidence in their currencies grew, and world trade took off and, for a century, gold was seen as a vital component of the world economy, supporting stability and confidence. The system came with constraints on government ability to respond to economic crises, though, and has been blamed for deepening and prolonging the Great Depression of the 1930s.
With
Catherine Schenk
Professor of Economic and Social History at the University of Oxford
Helen Paul
Lecturer in Economics and Economic History at the University of Southampton
And
Matthias Morys
Senior Lecturer in Economic History at the University of York
Produced by Eliane Glaser and Simon Tillotson