Therefore, the central bank’s freedom to issue banknotes is constrained by the amount of gold in its possession, although this advantage is less important at the present time because most countries have departed from this rule .
Relative stability in the exchange rate – ie the exchange rate of the national currency in foreign currencies without the need for intervention by the public authorities and this stability is based on the price of parity if the unit of one currency contains 2 grams of gold and the unit of the currency of the fixed state contains 3 grams of gold, The exchange rate is what makes the first country currency equivalent to 2: 3 of the currency of the second state, which is equivalent to the ratio between the amount of gold in each unit . Of course, does not prove the exchange rate completely at the price of parity but fluctuates around it up and down, but these fluctuations are not large Do not exceed the thresholds of one upper and the other These two extremes are called gold. They explain the limits of fluctuations in the exchange rate and exchange rate fluctuations resulting from supply and demand can only be narrow. The price difference from this ratio will only be to a certain extent known as the gold exit point or the gold export limit and the point or limit The entry of gold and the reason for these limits to volatility is that the process of exit or entry of gold for the purpose of settlement of international exchanges entails the costs of certain costs of shipping gold .
The rule of gold is linked to the currency by a percentage of gold. The law in England actually provided that the sterling was worth about 113 pounds of pure gold and the authorities were ready to import the pound in gold or gold in pounds within this percentage. The American equivalent of 23 pounds of net gold, ie, the exchange rate between the pound sterling and the US dollar is 10 pounds : about $ 5 .. And the assumption that there is an importer of English wishes to pay the value of goods imported from America, this importer can pay the value of purchases either :
- To buy dollars from banks in England in the form of a check drawn to order the US source at one exchange rate is 1: 5
- The English importer purchases a quantity of gold from the Bank of England at a price of £ 1 = 1 pound gold and ships gold to the US and offers it to the banks there and gets $ 5 for every £ 113 and delivers the dollars to the US issuer .
But it is noted that the shipment of gold to America requires shipping expenses and this is borne by the importer of course, which charges the gold if the cost of shipping 113 pounds gold is one dollar in the sense that the net exchange rate in the case of the shipment of gold is £ 1 = $ 5 – 1 = $ 4 In other words, if the gold is shipped, the English importer will be in the position of paying £ 1 for $ 4. In this case, it is best that the English importer goes to the bank and buys US dollars and withdraws a check for the US issuer. GBP = 5 USD FGB The English importer would prefer to follow the first method of buying a bank check for this value instead of charging the gold and since shipping the gold would make him get only $ 4 and therefore the value of the pound has decreased .
It would be different if the English importer went to the bank in England to buy the bank check for £ 1 = $ 5 and was surprised by the fall in the pound so that the bank sold every $ 3 for £ 1. The value of the pound then the English importer will think of shipping the can you store an gold ira account at home, in this case he will get $ 4 per pound .
It is worth noting that the value of the pound sterling is greater than the cost of shipping gold ( $ 1 in this case ). The English importer prefers to ship gold and the banks in England are aware of this phenomenon. Of course, the British will only buy $ 4 or more. With it and preferred to ship gold and the maximum could be devalued by the pound sterling is one dollar, which is equivalent to the cost of shipping gold The cost of shipping gold can fall in the value of sterling and since if the value of the pound more than that, individuals start to ship gold abroad The The term is defined as the term ” gold export limit “, meaning that the gold export limit refers to the value to which the exchange rate falls and the gold begins to exit. Thus, there is a lower limit for the depreciation of the sterling under the gold base. .
A reverse situation can be imagined if the English trader is a source and has a balance of dollars in America that he wants to convert into pounds sterling, where you can deduce what is known as the condition of the entry of gold, where there is a maximum limit of what can increase the value of sterling .
Thus, it is clear that exchange rates – under the gold rule – fluctuate only within the limits of the cost of shipping gold and thus are in a state of relative stability and change only in a small extent, but it does not stop at the exit of gold or entering a country to the effects on the exchange rate The fact is that there is a series of events going on inside the country as a result of the entry or exit of gold. If we assume that there are two countries ( x ) and ( r ) that these countries have a balance in their balance of payments and internal price levels, This increases the demand for the currency of the State ( r ) ie the exit of gold from d In addition, the entry of gold into the State ( Y ) leads to an increase in the balance And the increase in the quantity of money. As a result, the prices and wages levels in the State ( R ) are tracked . This procedure stops the demand of individuals in the State ( Q ) on the scheduling products . ) pays Aloferd in the state (r) to the request of the State products (o) this increases m Demand for state process (o) and so the value of its currency to the extent that the state (r) finds that it is better to export the gold to the State (s) instead of buying its currency .. and this reverse procedure continues until the tie back in the balance of payments and wage levels and Aloier In both countries ( X, Y ) Under the system of gold automatic exchange rates change within certain limits are the export of gold and the import of gold also lead the movement of its own to rebalance the Exchange and price levels and wages This system, which achieves the relative stability in exchange rates leads to an excellent service to exporters and importers, which is to increase the element of confidence and ensure the return of international commercial transactions, especially in the long term, as well as the level of prices in different countries to encourage trade between these countries That is, it is one of the advantages to the occupation in the form of a large permanent deficit or a large surplus in services, a drop in prices and reaching this limit leads to permanent deficit, arising from the gold rule allows the transfer of gold between different countries .
If there is a deficit in the balance of payments of one of the countries, gold comes out to meet the deficit that emerged and the exit of gold leads to a shortage of gold coins circulation or to the lack of money in the coffers of commercial banks are forced to these banks to reduce their loans and in general the consequent lack of means of payment and thus high interest rate And a decrease in the overall demand for goods is a major change that will restore balance to the balance of payments. Foreign capital will accept the transition to this country because of the high interest rates and foreigners accept their products and imports. Where there is a large surplus in the balance of payments as gold enters it to pay its debt from abroad, the means of payment increase and prices tend to decline as prices for goods and services to rise and this alone is able to transfer capital abroad and increase imports from exports, Payments .
- One of the advantages of the automated gold system is the stability of the levels of income and labor between different countries .
- Offering long-term deals as well as making international investments with some certainty .
Stability of price levels in different countries According to the mechanism of the system for countries with high levels of prices relative to their levels in other countries will export gold abroad and continue to exit gold until prices return to where they were and undoubtedly, the stability of prices is an important factor Which helps the economic development and supports the stability of price levels is that the system mechanism to ensure the distribution of gold among different countries according to the need of each of them to issue the necessary money, that is to put a restriction on the amount of money exported.