Not So Golden a Standard

[hoosiernorm]

David Ricardo proposed a gold standard without the need for a single ounce of gold in reserve: the central bank can buy and sell gold in order to keep the purchasing power of the currency constant in terms of gold. Suppose the Fed were to target today’s price of about $1,310. If gold rose, it would contract the money supply until the gold price fell, and vice versa. In practice some combination of a gold reserve and open market operations would be required to keep the gold price stable (all gold price movements are not the result of changes in money supply and the central bank should be able to buy and sell gold as well). Many considerations go into the correct price at which to stabilize gold, but the arithmetic Harper presents is simply irrelevant.

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[Michael]

The UK was on the silver standard, until the Bank Act of 1845, which also curtailed the note-issuing power of the banks.

Even at that time, bank notes themselves had become the small change of commerce, most of which was conducted using Bills of Exchange, Inland and Overseas and the Bank of England controlled the money supply through open-market operations.

From 1640 to 1845, the only gold coin minted in the UK was the guinea of about 7.73 g fine or about 3.33 to the Troy oz. It was never legal tender, but the government accepted it in payment at £1.05 or 21 shillings, in old money, so it circulated at that value. Its spending power, in today's money, was about $125. None were minted after 1813. I have a few in an old shoe-box, with other old coins, somewhere.

In Scotland, one still sometimes hears money referred to as "siller" (silver), the same as the French l'argent. In heraldry, a gold disk or roundel is termed a Bezant, Byzantine gold coins (solidi, 6 to the Troy oz fine) being the only ones known in Europe, during much of the Middle Ages. They appear on the Medici arms and, in the UK, three gold balls are still used as a sign outside pawnbrokers' shops.