BRETTON WOODS AND BEYOND: THE DECLINE OF THE GOLD STANDARD AND THE SHIFT TO FIAT MONEY

Irena Kenarova-Pencheva, PhD Student

Department of “Management and Social Activities” University of Ruse "Angel Kanchev "

Abstract

The gold standard is one of the most important monetary systems in economic history. It links national currencies to a fixed quantity of gold. This paper investigates the evolution of the gold standard from its origins in ancient civilizations to its institutionalization in the 19th century. Gold served as a medium of exchange and storage of value. Its operation relied on the price-specie flow mechanism. It automatically corrected trade imbalances. Thus, it influenced money supply, inflation and deflation. The study gives the benefits of the gold standard system. Those included long-term price stability, confidence in currency value and restrictions on inflationary policies. There were also limitations such as constrained monetary flexibility, deflationary pressures and the inability of governments to adequately respond to crises. The gold standard collapsed during World War I. The transition to the Bretton Woods system was gradual. It illustrated declining possibility of the gold standard to address the global economic shocks. The eventual abandonment of gold convertibility happened in 1971. This was the start of the modern era of fiat currencies and floating exchange rates. Despite its end, the gold standard continues to create debates on monetary stability and policy design.

Keywords

gold standard, monetary policy, Bretton Woods System, fiat currency

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