Gold Standard

Until 1914 a number of major industrialised countries adhered to the gold standard and fixed the value of their currencies in terms of a specified amount of gold. The system broke down during World War One and was briefly reinstated afterwards. Between 1946 and 1971 the Bretton Woods system of fixed exchange rates employed a modified gold standard. Countries settled their international balances in U.S. dollars and the U.S. government promised to redeem other central banks’ holdings of dollars for gold at a fixed rate of thirty-five dollars per ounce. But U.S. gold reserves were steadily reduced by balance of payments problems, undermining confidence in the system. The United States abandoned the gold standard in 1971 and Bretton Woods was replaced by a system of floating exchange rates.