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Investing in Gold and Silver - Essay Example
Finance & Accounting
Pages 4 (1004 words)
Name Investing in Gold and Silver Throughout the centuries gold and silver have been used as a source through which one can buy and sell goods. It has always been used as a form of currency, as early as the barter system…
By depositing the gold and silver into the respective banks of nations, it was replaced with paper money based on the value of the gold and silver they deposited (Dunwiddle, 2008). The problem started to arise when the World War closed in and the countries required huge amounts of resources to fund the wars. Prior to the World War, the gold standard was in place in most of the countries. Gold Standard, as explained above is when people could convert their gold into paper money. Hence, the government is restricted in the amount of paper money it could print. The advantage of this gold standard upholds is that the inflation is kept under check, as the supply of money is limited (Haynes, 2005). To fund the war the United Kingdom and the United States both abandoned the Gold Standard, in 1920s and 1933 respectively. This was replaced by the Gold Exchange Standard, through which countries did no longer hold reserves in actual gold, but in dollars and pounds. Thus putting these currencies in a strong position in the world, while the other countries kept on piling up foreign currency thinking they were good as gold. In 1974 to further cut the ties between gold and currency, US government of Nixon abolished the link. Due to the need of yet more funds for the Vietnam War, the government abolished this link. The effects of this final blow, led to high inflation further helping the government and big businesses. ...