test * test * test *
24
Money (An-Nuqood)
Money is the standard by which we measure the benefit found
in the commodity and in the effort i.e. goods and services.
Therefore, money is defined as being the medium by which
all goods and services are measured. Hence the price of a commodity and
the wage of a worker for instance, each represents the society’s estimate
of the value of that commodity and the effort of that worker. Bonds,
shares and the like are not considered money.
This estimation of the value of goods and services is, in all countries,
expressed by units. These units become the measure by which the benefit
obtained from a commodity and the benefit obtained from a service is
measured. These units would act as a medium of exchange, and these
units are money.
When Islam decreed the rules of trading and hiring, it did not
determine any specific item with which the exchange of goods, services
and benefits had to be compulsorily conducted. Islam has rather given the
human being the choice to conduct the transactions of exchange with
whatever medium he chooses, as long as mutual consent prevailed in the
exchange. It is, therefore permitted for a man to marry a woman by
teaching her the Qur’an, just as it is permitted for a person to buy a
commodity by working for its owner for a day, or to work for someone
for a day in exchange for a certain amount of dates etc. The exchange
could therefore be conducted with whatever people wished. However,
when it comes to exchanging a commodity with a specific monetary unit,
Islam has guided us to the monetary unit by which the exchange is to take
place. It has restricted the Muslims to a specific type of money, which is
gold and silver. Islam has not left it to society to express its own
estimation of the measure of benefit drawn out of goods or services, by
either fixed or variable monetary units, which society could manage as it
wished. Islam has rather specified these monetary units by which society
expresses the values i.e. the prices of goods and services.
This specification could be deduced from several matters and these
are as follows:
1. When Islam prohibited the hoarding of wealth, it specifically
prohibited the hoarding of gold and silver despite the fact that wealth
includes any property that can be owned. Wheat for instance is a type of
wealth, so are dates and money. However, hoarding is reflected in money,
not in the goods and services. The prohibition in the verse refers to the
hoarding of money, for it acts as the generally accepted medium of
exchange, and because the hoarding of money is the matter that produces
the effect of the prohibition i.e. restricting circulation. As for other
commodities, their accumulation would not be known as Kanz,
(hoarding), but as Ihtikar (monopoly). Hence the verse which prohibits
the hoarding of gold and silver in fact refers to the hoarding of money.
The verse has specified the money which Allah _ has prohibited us to
hoard which is gold and silver. Allah _ says:
“And those who hoard gold and silver and do not spend them in the way of Allah,
let them know that a severe punishment is awaiting them” [At-Tauba: 34]
Therefore, prohibition is focused upon the monetary medium of
exchange, thus the hoarding of gold and silver is forbidden, whether it
was minted or not.
2. Islam has linked gold and silver to a set of fixed rules. Hence, when
it imposed the Diyyah i.e. blood money, it specified a fixed amount of
gold. Also, when it decreed the penalty of cutting the hand of the thief,
it specified the minimum value of gold that is stolen which would entail
the cutting of the hand. In his letter to the people of the Yemen, the
Messenger of Allah _ was reported by An-Nisai on the authority of
Amru Ibn Hazm to have said: “The blood money for one soul would
be 100 camels...and for those who deal in gold it would be 1000
dinars.” Bukhari also reported on the authority of Aisha (ra) that the
Messenger of Allah _ also said: “The hand is cut for the theft of
one-quarter dinar and upward.” Therefore, this fixing of certain rules
by the Dinar, the dirham and the Mithqal, would make the Dinar with its
weight in gold, and the dirham with its weight in silver, a monetary unit
by which the values of goods and services are measured. This monetary
unit would be the money, which is the basis of the currency. Therefore,
the fact that Islam has linked the Shari’ah rules to gold and silver by text,
when these rules are related to money, serves as evidence that the
currency is solely restricted to gold and silver.
3. The Messenger of Allah _ has determined that gold and silver be
used as money, and exclusively made them the monetary measure to
evaluate goods and services, and ensured that all transactions be
conducted with them as their basis. He _ also established the units of this
money, which are the ounce, Dirham, Daniq (equal to 1/6 Dirham), Carat,
Mithqal and Dinar. These units were well known and widespread during
the lifetime of the Messenger of Allah _ and they were widely used by
all people. It has also been established that the Messenger of Allah _
approved of them. All trade and marriage transactions were conducted
in gold and silver, in their quality as money, and this has been established
in the Sahih Ahadith. The Messenger of Allah _ has determined the
weight of gold and silver with a specific weight, which was the weight of
the people of Makkah. Abu Dawud and An-Nisai reported on the
authority of Ibn Umar that the Messenger of Allah _ said: “The weight
should be that of the people of Makkah.” When reviewing the
monetary weights in Islam, we would conclude that the legal ounce would
equal 40 Dirhams, the dirham would be 6 Daniqs, the Dinar would equal
24 Carats and every 10 Dirhams would equal 7 Mithqals. The weights of
Madinah were established according to this order.
4.When Allah _decreed the Zakat of money, He _made it obligatory
in gold and silver, and He _determined a Nisab for the Zakat in gold and
silver. Therefore, to consider the Zakat of money as being gold and silver
would establish the money as being gold and silver.
5. The rules of exchange listed under the monetary transactions only,
have come in gold and silver alone. Also, all the financial transactions
mentioned in Islam were reported to have been conducted in gold and
silver. Exchange is the trading of one currency for another. It would be
either trading of one currency with the same type, or trading of one
currency for another type. In other words, exchange would be the
swapping of one currency for another. The fact that Shar’a has
determined the exchange, which is purely a financial transaction, linked
to nothing else but money by gold and silver serves as a clear evidence
that money should be in gold and silver and nothing else. At-Tirmidhi
reported that the Messenger of Allah _ said: “Trade gold for silver as
you wish, but hand to hand (without delay).” Bukhari also reported
that the Messenger of Allah _ said: “Gold for silver would be Riba,
unless it was hand to hand (without delay).”
Therefore, money is considered one of the issues which Islam has laid
down rules for and is not an issue subject to opinion and consultation,
nor subject to the requirements of economic and financial life. The
attribute of money as a specific type and unit of currency, is rather
determined by a Shari’ah rule. If one were to ponder over the above
mentioned five points, one would find a host of Shariah rules has been
related and linked to the money in Islam. Therefore, the prohibition of
its hoarding, the obligation of Zakat on it, the decreeing of the rule of
exchange for it, the approval of the Messenger of Allah _ of dealing with
it, the linking of the Diyyah (blood money) and the cutting of the hand
in theft to it makes the opinion in such a matter subject to the Shari’ah text
only. The fact that Shar’a has expressed through rules which are related
exclusively to money in gold and silver, or are linked to it, serves as a clear
evidence that the currency should be gold and silver, or based on gold
and silver. Therefore, the type of currency determined by the Shari’ah
rules must be adhered to. Thus, money in Islam should be gold and silver.
However, to exclusively determine gold and silver as money would not
necessarily mean that it would be forbidden to conduct any exchange in
other than gold and silver. The issue of currency in this regard would be
other than that of exchange, it would rather be the issue of adopting a
currency. Therefore, despite the fact that it would be permitted for people
to exchange in anything they wished, the monetary measure for exchange
and for anything other than exchange must be in gold and silver, for
money in Islam is gold and silver.
The Messenger of Allah _ made various types of gold and silver as
money, regardless of whether these were minted or not. He _ did not
mint a specific money, with specific and fixed features, rather the units of
gold and silver were Roman and Persian coins, both small and large coins
along with silver coins which were neither minted nor engraved, as well
as Yemeni coins. All of these coins were in use widely without exception.
However, these coins were not considered by their number or whether
they were engraved or not; they were only considered according to their
weight. The piece of gold could be the size of an egg, and people would
still deal with it. Thus, the definiition was by specifying gold and silver and
specifying the weight for each of them. Therefore, the rights of Allah _
such as Zakat, the rights of the people such as debts, as well as the prices
of goods and services, were related to Dirhams and Dinars i.e. to gold
and silver, evaluated by weight.
This State of affairs continued throughout the lifetime of the
Messenger of Allah _, that of the four Khulafaa Al-Rashideen, and the
beginning of the era of Bani Umayyah, until the arrival of Abdulmalik
Ibn Marwan, who deemed it appropriate to transform all the gold and
silver that was in use at the time, minted and non minted alike, into an
Islamic coinage and inscription, and gave it a standard and invariable
weight, thus doing away with the need to make reference to their weight.
So, he collected the largest and the smallest of coins and minted them
according to the weight of Makkah. Abdulmalik minted the Dirhams in
silver and the Dinars in gold in the year 75 AH, and ever since that time,
Islamic minted Dirhams and Dinars were in circulation i.e. the currency of
the Islamic State became distinguished, having the same invariable feature.
Therefore, the basis of the monetary standard in Islam was gold and
silver. As for size, coinage, form and inscription, these are all part of the
style. Therefore, the words of gold and silver, when mentioned in the
Shari’ah terminology and evaluation, would apply to two matters: The
money which is in circulation, whether it is copper or paper money as
long as it has an equivalent (from gold and silver), and the two metals of
gold and silver. Any money that is from gold or silver, would thus be
considered, and any paper or copper money or the like, which could be
transferred into gold or silver would also be considered.
The Gold Standard
A State would be following the gold standard if it used gold currency
in its foreign and domestic transactions, or if it used domestically a paper
money which could be exchanged for gold. This paper money could
either be for domestic use and for making payments abroad or solely for
making payments abroad, on condition that this exchange for has a fixed
price. In other words, it would still be following the gold standard on
condition that the paper unit can be exchanged for a specific quantity of
gold, at a fixed price and vice-versa. It would be natural in this case for
the value of the currency in the country to remain solidly linked to the
value of gold. Therefore, if the value of gold rose in comparison with
other commodities, the value of the currency in comparison with other
commodities would rise as well. If the value of goods decreased in
comparison with commodities, the value of the currency would also
decrease.
Money based on gold has a special characteristic, reflected in the fact
that the monetary unit is linked to gold in a specific amount. In other
words it would, by law, consist of a specific weight of gold. The import
and export of gold would be freely conducted, and people would be able
to freely acquire currencies, gold bullion, or gold dust and be able to
export them.
Since gold in this instance would move freely between various
countries, every person has the choice of either buying foreign currency,
or transferring (i.e. settling in) gold; a person would however opt for the
cheaper method. Therefore, since gold and the cost of its transfer would
cost more than the price of the foreign currencies in the market, it would
then be sensible to use foreign currency instead. However, if the
exchange rate exceed that figure, it would be best to take the gold out of
circulation and settle with it.
Benefits of the Gold Standard
If the benefits of the gold standard were to be compared with the fiat
(paper currency) standard and other standards, it would be inevitable
that the monetary gold standard would become a global standard. These
benefits would not allow any other monetary standard to become
established. Throughout the history of money and up until the First
World War, the whole world operated the gold and silver standards. No
other standards were known to the world until then. However, when the
colonialists mastered the various styles of economic and financial
imperialism, and began using currency as a means of colonialism, they
established different monetary standards. They considered bank deposits
and non exchangeable banknotes, which had no reserve of gold or silver,
as money, along with gold and silver. Therefore, it is necessary to explain
the benefits of the gold standard, the most important of which are:
1. The gold basis necessitates the free circulation, import and export of
gold, which leads to monetary, financial and economic stability. In this
case, transactions of exchange would only originate from foreign
payments to meet the cost of commodities and the salaries of workers.
2. The gold standard ensures the stability of exchange rates between
various countries, and the stability of the exchange rates in turn leads to
a boom in international trade, for traders would no longer fear the
expansion of foreign trade, and the uncertainty of exchange rate
instability.
3. If the gold standard was employed, central banks and governments
would not be able to expand the issuance of banknotes, for as long as the
banknote remains non exchangeable with gold at a fixed rate, the
authorities concerned would fear that if they exceeded limits in issuing
banknotes, the demand for gold would increase and they would not be
able to meet this demand. Therefore, they would always tend to maintain
a reasonable ratio between what they issue in terms of banknotes and
gold reserves.
4. Each of the currencies used, all over the world would be fixed by a
specific amount of gold. As a result, the movements of commodities,
money and people from one country to another would be easier, and
the problems of hard currency would disappear.
5. The gold standard would help each country preserve her gold, for
there would be no gold smuggling from one country to another, and
countries would not need to exercise control in order to protect their
wealth, for gold would only leave the country for legitimate reasons i.e.
as prices for commodities or salaries for workers.
These are some of the benefits of the gold standard, and they all make
it necessary that the world operates this standard. Therefore, it comes as
no surprise to learn that the whole world up until the First World War was
indeed operating the gold standard.
At the start of the first world war, the most prevailing monetary system
in the world was that based on the gold standard, and money in
circulation at the time was in fact gold coins and paper money readily
exchangeable for their equivalent value in gold. The silver standard also
operated alongside the gold standard. The implementation of this
standard led to the establishment of the most productive economic
relations. However, when the First World War was declared in 1914, the
warring countries undertook certain measures which led to disorder in the
gold standard. Some countries cancelled the liability of exchanging their
currencies to gold. Other countries imposed harsh restrictions on the
export of gold, while others put obstacles in the face of importing it.
This continued until 1971 when America declared that she had put an end
to the operation of the gold standard and that she intended to sever the
link between gold and the dollar. Since then, gold has had no relation with
the currency, but rather has become like any other commodity. America’s
intention was to establish the dollar as the monetary basis world-wide so
that it could control and dominate the international money market.
Therefore, the gold standard no longer operated throughout the world
and this disturbed the monetary system and the rates of exchange
fluctuated. Since then, obstacles and difficulties in the transfer of
currencies, goods and services have appeared.
Money (An-Nuqood)
Money is the standard by which we measure the benefit found
in the commodity and in the effort i.e. goods and services.
Therefore, money is defined as being the medium by which
all goods and services are measured. Hence the price of a commodity and
the wage of a worker for instance, each represents the society’s estimate
of the value of that commodity and the effort of that worker. Bonds,
shares and the like are not considered money.
This estimation of the value of goods and services is, in all countries,
expressed by units. These units become the measure by which the benefit
obtained from a commodity and the benefit obtained from a service is
measured. These units would act as a medium of exchange, and these
units are money.
When Islam decreed the rules of trading and hiring, it did not
determine any specific item with which the exchange of goods, services
and benefits had to be compulsorily conducted. Islam has rather given the
human being the choice to conduct the transactions of exchange with
whatever medium he chooses, as long as mutual consent prevailed in the
exchange. It is, therefore permitted for a man to marry a woman by
teaching her the Qur’an, just as it is permitted for a person to buy a
commodity by working for its owner for a day, or to work for someone
for a day in exchange for a certain amount of dates etc. The exchange
could therefore be conducted with whatever people wished. However,
when it comes to exchanging a commodity with a specific monetary unit,
Islam has guided us to the monetary unit by which the exchange is to take
place. It has restricted the Muslims to a specific type of money, which is
gold and silver. Islam has not left it to society to express its own
estimation of the measure of benefit drawn out of goods or services, by
either fixed or variable monetary units, which society could manage as it
wished. Islam has rather specified these monetary units by which society
expresses the values i.e. the prices of goods and services.
This specification could be deduced from several matters and these
are as follows:
1. When Islam prohibited the hoarding of wealth, it specifically
prohibited the hoarding of gold and silver despite the fact that wealth
includes any property that can be owned. Wheat for instance is a type of
wealth, so are dates and money. However, hoarding is reflected in money,
not in the goods and services. The prohibition in the verse refers to the
hoarding of money, for it acts as the generally accepted medium of
exchange, and because the hoarding of money is the matter that produces
the effect of the prohibition i.e. restricting circulation. As for other
commodities, their accumulation would not be known as Kanz,
(hoarding), but as Ihtikar (monopoly). Hence the verse which prohibits
the hoarding of gold and silver in fact refers to the hoarding of money.
The verse has specified the money which Allah _ has prohibited us to
hoard which is gold and silver. Allah _ says:
“And those who hoard gold and silver and do not spend them in the way of Allah,
let them know that a severe punishment is awaiting them” [At-Tauba: 34]
Therefore, prohibition is focused upon the monetary medium of
exchange, thus the hoarding of gold and silver is forbidden, whether it
was minted or not.
2. Islam has linked gold and silver to a set of fixed rules. Hence, when
it imposed the Diyyah i.e. blood money, it specified a fixed amount of
gold. Also, when it decreed the penalty of cutting the hand of the thief,
it specified the minimum value of gold that is stolen which would entail
the cutting of the hand. In his letter to the people of the Yemen, the
Messenger of Allah _ was reported by An-Nisai on the authority of
Amru Ibn Hazm to have said: “The blood money for one soul would
be 100 camels...and for those who deal in gold it would be 1000
dinars.” Bukhari also reported on the authority of Aisha (ra) that the
Messenger of Allah _ also said: “The hand is cut for the theft of
one-quarter dinar and upward.” Therefore, this fixing of certain rules
by the Dinar, the dirham and the Mithqal, would make the Dinar with its
weight in gold, and the dirham with its weight in silver, a monetary unit
by which the values of goods and services are measured. This monetary
unit would be the money, which is the basis of the currency. Therefore,
the fact that Islam has linked the Shari’ah rules to gold and silver by text,
when these rules are related to money, serves as evidence that the
currency is solely restricted to gold and silver.
3. The Messenger of Allah _ has determined that gold and silver be
used as money, and exclusively made them the monetary measure to
evaluate goods and services, and ensured that all transactions be
conducted with them as their basis. He _ also established the units of this
money, which are the ounce, Dirham, Daniq (equal to 1/6 Dirham), Carat,
Mithqal and Dinar. These units were well known and widespread during
the lifetime of the Messenger of Allah _ and they were widely used by
all people. It has also been established that the Messenger of Allah _
approved of them. All trade and marriage transactions were conducted
in gold and silver, in their quality as money, and this has been established
in the Sahih Ahadith. The Messenger of Allah _ has determined the
weight of gold and silver with a specific weight, which was the weight of
the people of Makkah. Abu Dawud and An-Nisai reported on the
authority of Ibn Umar that the Messenger of Allah _ said: “The weight
should be that of the people of Makkah.” When reviewing the
monetary weights in Islam, we would conclude that the legal ounce would
equal 40 Dirhams, the dirham would be 6 Daniqs, the Dinar would equal
24 Carats and every 10 Dirhams would equal 7 Mithqals. The weights of
Madinah were established according to this order.
4.When Allah _decreed the Zakat of money, He _made it obligatory
in gold and silver, and He _determined a Nisab for the Zakat in gold and
silver. Therefore, to consider the Zakat of money as being gold and silver
would establish the money as being gold and silver.
5. The rules of exchange listed under the monetary transactions only,
have come in gold and silver alone. Also, all the financial transactions
mentioned in Islam were reported to have been conducted in gold and
silver. Exchange is the trading of one currency for another. It would be
either trading of one currency with the same type, or trading of one
currency for another type. In other words, exchange would be the
swapping of one currency for another. The fact that Shar’a has
determined the exchange, which is purely a financial transaction, linked
to nothing else but money by gold and silver serves as a clear evidence
that money should be in gold and silver and nothing else. At-Tirmidhi
reported that the Messenger of Allah _ said: “Trade gold for silver as
you wish, but hand to hand (without delay).” Bukhari also reported
that the Messenger of Allah _ said: “Gold for silver would be Riba,
unless it was hand to hand (without delay).”
Therefore, money is considered one of the issues which Islam has laid
down rules for and is not an issue subject to opinion and consultation,
nor subject to the requirements of economic and financial life. The
attribute of money as a specific type and unit of currency, is rather
determined by a Shari’ah rule. If one were to ponder over the above
mentioned five points, one would find a host of Shariah rules has been
related and linked to the money in Islam. Therefore, the prohibition of
its hoarding, the obligation of Zakat on it, the decreeing of the rule of
exchange for it, the approval of the Messenger of Allah _ of dealing with
it, the linking of the Diyyah (blood money) and the cutting of the hand
in theft to it makes the opinion in such a matter subject to the Shari’ah text
only. The fact that Shar’a has expressed through rules which are related
exclusively to money in gold and silver, or are linked to it, serves as a clear
evidence that the currency should be gold and silver, or based on gold
and silver. Therefore, the type of currency determined by the Shari’ah
rules must be adhered to. Thus, money in Islam should be gold and silver.
However, to exclusively determine gold and silver as money would not
necessarily mean that it would be forbidden to conduct any exchange in
other than gold and silver. The issue of currency in this regard would be
other than that of exchange, it would rather be the issue of adopting a
currency. Therefore, despite the fact that it would be permitted for people
to exchange in anything they wished, the monetary measure for exchange
and for anything other than exchange must be in gold and silver, for
money in Islam is gold and silver.
The Messenger of Allah _ made various types of gold and silver as
money, regardless of whether these were minted or not. He _ did not
mint a specific money, with specific and fixed features, rather the units of
gold and silver were Roman and Persian coins, both small and large coins
along with silver coins which were neither minted nor engraved, as well
as Yemeni coins. All of these coins were in use widely without exception.
However, these coins were not considered by their number or whether
they were engraved or not; they were only considered according to their
weight. The piece of gold could be the size of an egg, and people would
still deal with it. Thus, the definiition was by specifying gold and silver and
specifying the weight for each of them. Therefore, the rights of Allah _
such as Zakat, the rights of the people such as debts, as well as the prices
of goods and services, were related to Dirhams and Dinars i.e. to gold
and silver, evaluated by weight.
This State of affairs continued throughout the lifetime of the
Messenger of Allah _, that of the four Khulafaa Al-Rashideen, and the
beginning of the era of Bani Umayyah, until the arrival of Abdulmalik
Ibn Marwan, who deemed it appropriate to transform all the gold and
silver that was in use at the time, minted and non minted alike, into an
Islamic coinage and inscription, and gave it a standard and invariable
weight, thus doing away with the need to make reference to their weight.
So, he collected the largest and the smallest of coins and minted them
according to the weight of Makkah. Abdulmalik minted the Dirhams in
silver and the Dinars in gold in the year 75 AH, and ever since that time,
Islamic minted Dirhams and Dinars were in circulation i.e. the currency of
the Islamic State became distinguished, having the same invariable feature.
Therefore, the basis of the monetary standard in Islam was gold and
silver. As for size, coinage, form and inscription, these are all part of the
style. Therefore, the words of gold and silver, when mentioned in the
Shari’ah terminology and evaluation, would apply to two matters: The
money which is in circulation, whether it is copper or paper money as
long as it has an equivalent (from gold and silver), and the two metals of
gold and silver. Any money that is from gold or silver, would thus be
considered, and any paper or copper money or the like, which could be
transferred into gold or silver would also be considered.
The Gold Standard
A State would be following the gold standard if it used gold currency
in its foreign and domestic transactions, or if it used domestically a paper
money which could be exchanged for gold. This paper money could
either be for domestic use and for making payments abroad or solely for
making payments abroad, on condition that this exchange for has a fixed
price. In other words, it would still be following the gold standard on
condition that the paper unit can be exchanged for a specific quantity of
gold, at a fixed price and vice-versa. It would be natural in this case for
the value of the currency in the country to remain solidly linked to the
value of gold. Therefore, if the value of gold rose in comparison with
other commodities, the value of the currency in comparison with other
commodities would rise as well. If the value of goods decreased in
comparison with commodities, the value of the currency would also
decrease.
Money based on gold has a special characteristic, reflected in the fact
that the monetary unit is linked to gold in a specific amount. In other
words it would, by law, consist of a specific weight of gold. The import
and export of gold would be freely conducted, and people would be able
to freely acquire currencies, gold bullion, or gold dust and be able to
export them.
Since gold in this instance would move freely between various
countries, every person has the choice of either buying foreign currency,
or transferring (i.e. settling in) gold; a person would however opt for the
cheaper method. Therefore, since gold and the cost of its transfer would
cost more than the price of the foreign currencies in the market, it would
then be sensible to use foreign currency instead. However, if the
exchange rate exceed that figure, it would be best to take the gold out of
circulation and settle with it.
Benefits of the Gold Standard
If the benefits of the gold standard were to be compared with the fiat
(paper currency) standard and other standards, it would be inevitable
that the monetary gold standard would become a global standard. These
benefits would not allow any other monetary standard to become
established. Throughout the history of money and up until the First
World War, the whole world operated the gold and silver standards. No
other standards were known to the world until then. However, when the
colonialists mastered the various styles of economic and financial
imperialism, and began using currency as a means of colonialism, they
established different monetary standards. They considered bank deposits
and non exchangeable banknotes, which had no reserve of gold or silver,
as money, along with gold and silver. Therefore, it is necessary to explain
the benefits of the gold standard, the most important of which are:
1. The gold basis necessitates the free circulation, import and export of
gold, which leads to monetary, financial and economic stability. In this
case, transactions of exchange would only originate from foreign
payments to meet the cost of commodities and the salaries of workers.
2. The gold standard ensures the stability of exchange rates between
various countries, and the stability of the exchange rates in turn leads to
a boom in international trade, for traders would no longer fear the
expansion of foreign trade, and the uncertainty of exchange rate
instability.
3. If the gold standard was employed, central banks and governments
would not be able to expand the issuance of banknotes, for as long as the
banknote remains non exchangeable with gold at a fixed rate, the
authorities concerned would fear that if they exceeded limits in issuing
banknotes, the demand for gold would increase and they would not be
able to meet this demand. Therefore, they would always tend to maintain
a reasonable ratio between what they issue in terms of banknotes and
gold reserves.
4. Each of the currencies used, all over the world would be fixed by a
specific amount of gold. As a result, the movements of commodities,
money and people from one country to another would be easier, and
the problems of hard currency would disappear.
5. The gold standard would help each country preserve her gold, for
there would be no gold smuggling from one country to another, and
countries would not need to exercise control in order to protect their
wealth, for gold would only leave the country for legitimate reasons i.e.
as prices for commodities or salaries for workers.
These are some of the benefits of the gold standard, and they all make
it necessary that the world operates this standard. Therefore, it comes as
no surprise to learn that the whole world up until the First World War was
indeed operating the gold standard.
At the start of the first world war, the most prevailing monetary system
in the world was that based on the gold standard, and money in
circulation at the time was in fact gold coins and paper money readily
exchangeable for their equivalent value in gold. The silver standard also
operated alongside the gold standard. The implementation of this
standard led to the establishment of the most productive economic
relations. However, when the First World War was declared in 1914, the
warring countries undertook certain measures which led to disorder in the
gold standard. Some countries cancelled the liability of exchanging their
currencies to gold. Other countries imposed harsh restrictions on the
export of gold, while others put obstacles in the face of importing it.
This continued until 1971 when America declared that she had put an end
to the operation of the gold standard and that she intended to sever the
link between gold and the dollar. Since then, gold has had no relation with
the currency, but rather has become like any other commodity. America’s
intention was to establish the dollar as the monetary basis world-wide so
that it could control and dominate the international money market.
Therefore, the gold standard no longer operated throughout the world
and this disturbed the monetary system and the rates of exchange
fluctuated. Since then, obstacles and difficulties in the transfer of
currencies, goods and services have appeared.
posted by BlogAdmin at 8:43 AM
