Classifications & Characteristics of Gold Exchange Standards

The gold standard is a method of measuring the monetary portion of an economy. For instance, a standard economic unit is tied to a fixed weight of gold. In this case, money is the economic unit and its value is determined by the value of gold. There are three kinds, or classifications, of gold standard with both similar and distinguishing characteristics.

The gold specie standard existed when monetary transactions occurred with gold coins. In other words, the gold itself was used in the transaction. Paper money was also used, but it was tied to a specific number of gold coins. Paper bills in the United States were actually gold certificates. A $100 gold certificate entitled the bearer of that certificate to the equivalent amount in gold. The gold specie standard is one of the oldest forms of a monetary system. Gold coins were used as long ago as the Byzantine Empire. Although gold coins are still produced, they are no longer used as currency.

The de facto gold standard existed when a country guaranteed the value of a coin made of a metal other than gold to be worth that amount in gold. For instance, a country that issued silver coins would tie their worth to a fixed worth of gold, regardless of what the silver itself was worth. This gave the option of being able to pay debts without actual gold because the value of the coin exchanging hands was guaranteed by the government to be worth a certain amount of gold. It also meant that the country that guaranteed the value of the coin in gold had to have the gold reserves to back it up.

In the gold bullion standard, no coins of any kind circulated or changed hands. This standard was created for government authorities to sell gold bullion at a fixed rate for circulating currency. This standard eliminated the need for countries to supply gold on demand to bearers of their currency. It allowed governments to pay debts to other governments with paper currency instead of gold. The money was still based on the value of gold, but no physical gold needed to change hands.