In this episode, we'll explore the intriguing history of the gold standard, a system where money was directly tied to a set value of gold.
We'll learn why it was introduced, its eventual decline, and discuss whether there is a case for its return in today's economy.
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:21] I'm Alastair Budge, and today we are going to be talking about gold.
[00:00:26] And more specifically, the gold standard, the system during which paper money was directly convertible to physical gold.
[00:00:36] If you have never heard of this before, it might seem strange, an unusual system, but it was an incredibly important part of economic history.
[00:00:46] So, in this episode, we’ll talk about where it came from, how it worked, its advantages and disadvantages, why it was eventually abandoned, and why some people are now calling for its return.
[00:01:00] OK then, let’s not waste another minute, and get talking about the gold standard.
[00:01:07] If you watched Donald Duck cartoons as a child, you might remember Donald’s uncle, Scrooge McDuck.
[00:01:15] He is an extremely rich duck and spends his days thinking about his money and ways he can make more of it.
[00:01:25] All of his money is kept in “The Money Bin”, and one of Scrooge McDuck’s favourite things to do is to dive into his huge stash of gold coins.
[00:01:38] It is a symbol of extreme wealth - everyone watching it immediately recognises that this means he is a rich man.
[00:01:47] But, why?
[00:01:49] Why is gold seen as a symbol of wealth?
[00:01:52] And how did it come to be so valuable?
[00:01:56] The simplistic answer is “It looks pretty and is shiny”, and this is of course true, but there are some nuances to this, some additional factors.
[00:02:08] Firstly, the value of something tends to be linked to how rare it is and how hard it is to get.
[00:02:16] Gold can be found all over the world. The problem is that getting gold out of the ground is difficult and expensive.
[00:02:25] So that’s the first thing: it’s difficult to get, therefore it is relatively rare.
[00:02:30] Secondly, it's incredibly malleable, meaning that you can bend it and change its shape without breaking it. You can melt it down and create something new with it, and the gold will work just as well.
[00:02:45] Thirdly, and helped by the previous reason, you can make beautiful things with it, shiny jewellery, crowns, and other decorative items that look nice.
[00:02:57] Because it was found all over the world, and humans aren’t so different, it was seen as an attractive metal by societies everywhere, from the Ancient Egyptians to the Aztecs, Ancient Greece to Mali in West Africa.
[00:03:14] And although it is very malleable, it can bend and be moulded into new shapes, it is an incredibly resistant metal.
[00:03:23] It doesn’t corrode, it doesn’t get damaged, it doesn’t rust.
[00:03:27] It is almost as if, if you were going to design an element that had the perfect properties to be used as a type of money, gold would be it.
[00:03:38] And, as you may know, gold has been used as a form of money since ancient times, with the first recorded gold coin coming from Lydia, in modern-day Turkey, in 600 BC.
[00:03:54] Cities and countries started to mint their own gold coins, producing their own currency for use both domestically and with other states.
[00:04:05] And the good thing about using gold as money was that two different civilisations—whether they spoke different languages or had different customs—could trade their gold coins with one another.
[00:04:18] The coins might have been different, they had a different person’s head on them and they might have been a different shape, but they both contained a certain amount of gold, so they had intrinsic value.
[00:04:33] It was this combination of factors - the rarity, the durability, the malleability and the beauty - that made it uniquely valuable and suitable as a form of money.
[00:04:46] But gold wasn’t always the most practical form of money.
[00:04:50] It was so valuable that even the smallest coins were often equivalent to a week or more’s salary, so it couldn’t be used for smaller transactions - paying for a loaf of bread or something like that.
[00:05:03] So other coins tended to be used, made out of less valuable materials like silver.
[00:05:10] And gold wasn’t great for very large transactions either, because it wasn’t exactly convenient to carry around bags of gold coins.
[00:05:21] This led to the creation of a system where people could store their gold safely with someone else and in return, they would receive a piece of paper that said, “This paper represents a certain amount of gold.”
[00:05:35] It was a note from a bank, a banknote, paper money.
[00:05:40] The paper itself, the physical material the note was made out of, had no intrinsic value, but it was the fact that it could be legally exchanged into gold that meant the paper did have implied value.
[00:05:57] And that, in simplified form, was the beginning of paper money backed by gold, also known as the gold standard.
[00:06:07] So, how exactly did the gold standard work in practice?
[00:06:12] Under a gold standard, a country’s currency was directly linked to a specific amount of gold.
[00:06:20] The government promised that anyone holding a certain amount of paper money could, if they so wanted, exchange it for a fixed amount of gold.
[00:06:31] Britain was the first major country to adopt this system, thanks in part to Sir Isaac Newton.
[00:06:39] Now, you might know Isaac Newton as the man who sat under a tree and an apple fell on his head and he then understood how gravity works.
[00:06:50] He was also the so-called “Master Of The Mint”, meaning he was in charge of the British monetary system.
[00:06:58] In Britain, silver was originally used for most trading, but as more silver flowed to China—whose enormous economy absorbed vast amounts of the stuff— Newton decided to take action.
[00:07:13] He set a fixed exchange rate between silver and gold, and overvalued gold compared to silver.
[00:07:22] This encouraged people to use gold instead of silver, and this helped shift the country from a bimetallic system to a de facto gold standard, a monetary system based around gold.
[00:07:38] And in 1821, the United Kingdom became the first major country to officially adopt the gold standard, setting the value of the British pound at 1 pound equalling 0.25 ounces of gold.
[00:07:56] This gold standard meant that anyone with a 1 pound note could go to the Bank of England and swap their £1 note for 0.25 ounces of gold.
[00:08:09] The important thing was that they could, not that they should.
[00:08:14] Obviously, it would have been frustrating for everyone to be constantly going to the bank to swap paper money for gold, and then gold back to paper money when they needed to buy something, but the important thing was that they knew that they could get gold if they needed to.
[00:08:32] And this belief that paper money was backed by something universally valuable built tremendous trust in the financial system, and helped facilitate international trade for Britain.
[00:08:46] As the world’s leading economic power at the time, Britain’s move to the gold standard in 1821 set a global precedent.
[00:08:55] Other nations, seeing its benefits, soon followed suit.
[00:09:00] First was Canada, in 1853, then Germany and the United States, and by 1873 the gold standard had become the basis for the global monetary system.
[00:09:13] This expansion of the gold standard wasn’t just a matter of policy—it was also enabled by the huge amounts of gold entering circulation after the gold rushes of the mid-19th century, particularly in California and Australia.
[00:09:30] These discoveries flooded global markets with gold, making international trade easier and more reliable and allowing more countries to join the gold standard system.
[00:09:42] Currencies were tied to each other, and these currencies in turn were tied to the amount of gold that existed in the reserves of the central banks of these countries.
[00:09:55] This had a great stabilising act.
[00:09:58] Because each country’s currency was tied to gold, the value of currencies between countries became more predictable.
[00:10:09] This made international trade much easier, as countries could trade with one another confidently, knowing that exchange rates would remain stable.
[00:10:21] Another benefit was that the gold standard prevented governments from printing too much money.
[00:10:27] Since the amount of money in circulation was tied to the amount of gold a country had in its reserves, governments couldn’t simply print money whenever they wanted.
[00:10:40] This helped to control inflation and maintain the value of the currency.
[00:10:46] One of the reasons that prices for everything increased in 2022 was that governments printed vast amounts of money to stimulate the economy during COVID-19, meaning that the value of each unit of currency was reduced.
[00:11:02] Under a gold standard system, this can’t happen because a country needs to have enough gold in its reserves to maintain its currency, the amount of gold needs to be proportionate to the amount of money in circulation.
[00:11:18] In other words, if a government prints an extra 10 billion pounds, it needs to add an extra 10 billion pounds worth of gold to its reserves, because the paper money is tied to physical gold.
[00:11:33] But, while the gold standard was a good thing in terms of reducing the probability of inflation, it greatly reduced the ability of a country and its government to intervene in the economy if it needed to.
[00:11:47] Take, for example, COVID-19.
[00:11:51] Governments around the world injected large amounts of money into the economy, doing everything from handing out cash to individuals to giving low-interest loans to businesses.
[00:12:02] This money came from somewhere - it was printed by the central banks.
[00:12:08] This was possible because we don’t have the gold standard anymore, as we’ll come to talk about in a bit.
[00:12:15] And in fact, it was the need to react to a crisis and the inability to do so that caused the first big problem for the gold standard.
[00:12:26] With the outbreak of World War One, countries like the UK, France and Germany needed the flexibility to print more money to fund their war efforts, but the rigid structure of the gold standard simply didn’t allow for that.
[00:12:42] They needed to increase the money supply without worrying about having enough gold reserves to back up every note in circulation.
[00:12:51] So, they left, or rather, they temporarily abandoned their commitment to the gold standard.
[00:12:58] No longer could a citizen go to a central bank and exchange their banknotes for gold.
[00:13:04] But, as with many “temporary” measures, things didn’t quite go back to normal after the war ended.
[00:13:11] Although many countries returned to some form of the gold standard in the 1920s, the global economy had changed significantly, and it wasn’t simply a case of going back to something that had worked 10 years earlier.
[00:13:27] When the Great Depression hit in the early 1930s, it made returning to the gold standard even more difficult.
[00:13:35] Economies around the world faced severe hardship, and governments needed more control over their financial systems to manage the crisis.
[00:13:44] However, the rigid structure of the gold standard tied their hands - they couldn’t print more money, and instead had to do things like cut government spending and reduce wages - Many economists argue this is one of the reasons the Great Depression was so devastating.
[00:14:03] Soon, enough, countries started to abandon the gold standard, starting with Britain in September 1931.
[00:14:12] No longer could a citizen go to the bank and exchange their pounds for gold.
[00:14:18] However, this didn’t completely free Britain from the influence of gold.
[00:14:24] The British pound became tied to the U.S. dollar, which was still backed by gold.
[00:14:31] The dollar had become the central currency of the global monetary system, and this arrangement continued even after World War II.
[00:14:41] In 1944, world leaders met at a conference in Bretton Woods, in New Hampshire, to design a new international monetary system.
[00:14:51] This conference is probably best known for creating institutions like the World Bank and the IMF, which were designed to help manage global monetary policy and promote economic stability after the war.
[00:15:06] But another key element of this was the pegging of the world’s largest currencies to the U.S. dollar, which was, in turn, pegged to gold at a fixed rate of $35 per ounce.
[00:15:22] So, effectively there was a global gold standard because every key currency - the British pound, the French franc, the German Deutsche Mark, and the Japanese yen - they were all tied to the US dollar, which was exchangeable for gold.
[00:15:39] This system worked for a while, providing some stability after the war.
[00:15:45] However, by the 1960s, the U.S. was printing more and more dollars to fund its involvement in the Vietnam War and its domestic programs, without having enough gold to back all the dollars in circulation.
[00:16:01] In 1971, the situation came to a head.
[00:16:06] Countries like France, which held large amounts of U.S. dollars, began to demand gold in exchange for their dollars.
[00:16:16] Essentially, they started to lose trust in the value of the paper money, the dollars that they held, and they called for their right to exchange it into physical gold, which did have intrinsic value, because of all of its physical properties that you knew about already and we listed at the start of the episode.
[00:16:37] The problem was the U.S. didn’t have enough gold to cover these demands, so when President Richard Nixon saw this he made the dramatic decision to suspend the dollar’s convertibility into gold.
[00:16:54] In other words, he said, “Nope, US dollars are no longer backed by gold”.
[00:17:01] This was called the Nixon Shock, and it effectively ended the Bretton Woods system and the last official link between gold and global currencies.
[00:17:14] From 1971 onward, currencies around the world were allowed to “float”.
[00:17:20] That meant their value would be determined by the market—by supply and demand—rather than by a fixed amount of gold.
[00:17:30] And this is the situation we have today.
[00:17:33] At the time I’m recording this, €1.00 will buy you $1.10.
[00:17:40] But tomorrow it might buy you $1.09 or $1.11 or more or less, depending on the perceived value of the Euro and the dollar.
[00:17:52] These dollars and Euros are not backed by anything physical. The entire system is based on trust in the government that issues them.
[00:18:03] This is called a fiat money system.
[00:18:07] Fiat money is essentially paper currency that has no intrinsic value; its value is based on trust in the issuing body.
[00:18:18] And with a fiat money system as opposed to a gold standard system, governments have much more flexibility in managing their economies.
[00:18:27] They can adjust the money supply as needed, without having to worry about having enough gold in their reserves.
[00:18:35] But, it also means that there is no limit on how much money can be printed, which has its own set of risks, such as inflation, as we saw during the COVID-19 pandemic, or other forms of economic mismanagement as anyone from Turkey or Venezuela or even Zimbabwe will know all too well.
[00:18:58] And if you have heard talk of the gold standard in the news over the past few years, it might have been in connection with Bitcoin.
[00:19:08] Proponents of Bitcoin have called it “digital gold”, in that it has many of the same properties as gold: it is decentralised [not owned or controlled by one country or organisation], there is a finite supply, it is increasingly expensive to obtain, and as a result, it is not subject to inflation.
[00:19:31] But, unlike gold, it has no intrinsic value, it is computer code and its only value is because other people agree that it is valuable.
[00:19:43] Now, while most economists today believe that moving away from the gold standard was the right decision, there are still some people who argue that we should return to it.
[00:19:55] They believe that a gold standard would bring more stability to the global economy, would force governments to balance their budgets and prevent them from printing too much money which causes inflation.
[00:20:09] To wrap things up, the gold standard was a fascinating piece of economic history that was in place in some shape or form for the majority of the past 150 years.
[00:20:21] The famous economist John Maynard Keynes once called gold ‘a barbarous relic’, suggesting that it was both uncivilised and inappropriate for use in a modern society.
[00:20:34] Whether you agree with him or not, the move away from the gold standard marked a huge shift in how we think about money.
[00:20:43] Gold has value because we believe it does, and because of what we think we can do with it—whether that’s wearing something shiny on our neck or storing wealth for future generations.
[00:20:56] But in the 21st century, value isn’t just about physical things; it’s about trust and belief in the financial system.
[00:21:06] Money has value because we say it does, or rather, because governments say it does.
[00:21:13] Bringing it all the way back to the start of the episode, Scrooge McDuck’s greatest pleasure was unlocking the giant door to his money bin and jumping around in his pile of gold.
[00:21:27] Scrooge McDuck in 2024 would probably simply pick up his iPhone and check his bank balance, counting the many many zeros on the screen.
[00:21:38] It is a lot less shiny, but the question I’ll leave you with is this: is it any less real?
[00:21:48] OK then, that is it for today's episode on the gold standard.
[00:21:53] I know we went quite deep into economic theory and it was a little different from an adventurous tale of a robbery or scandal, but I hope it was an interesting one nevertheless.
[00:22:04] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:22:09] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:21] I'm Alastair Budge, and today we are going to be talking about gold.
[00:00:26] And more specifically, the gold standard, the system during which paper money was directly convertible to physical gold.
[00:00:36] If you have never heard of this before, it might seem strange, an unusual system, but it was an incredibly important part of economic history.
[00:00:46] So, in this episode, we’ll talk about where it came from, how it worked, its advantages and disadvantages, why it was eventually abandoned, and why some people are now calling for its return.
[00:01:00] OK then, let’s not waste another minute, and get talking about the gold standard.
[00:01:07] If you watched Donald Duck cartoons as a child, you might remember Donald’s uncle, Scrooge McDuck.
[00:01:15] He is an extremely rich duck and spends his days thinking about his money and ways he can make more of it.
[00:01:25] All of his money is kept in “The Money Bin”, and one of Scrooge McDuck’s favourite things to do is to dive into his huge stash of gold coins.
[00:01:38] It is a symbol of extreme wealth - everyone watching it immediately recognises that this means he is a rich man.
[00:01:47] But, why?
[00:01:49] Why is gold seen as a symbol of wealth?
[00:01:52] And how did it come to be so valuable?
[00:01:56] The simplistic answer is “It looks pretty and is shiny”, and this is of course true, but there are some nuances to this, some additional factors.
[00:02:08] Firstly, the value of something tends to be linked to how rare it is and how hard it is to get.
[00:02:16] Gold can be found all over the world. The problem is that getting gold out of the ground is difficult and expensive.
[00:02:25] So that’s the first thing: it’s difficult to get, therefore it is relatively rare.
[00:02:30] Secondly, it's incredibly malleable, meaning that you can bend it and change its shape without breaking it. You can melt it down and create something new with it, and the gold will work just as well.
[00:02:45] Thirdly, and helped by the previous reason, you can make beautiful things with it, shiny jewellery, crowns, and other decorative items that look nice.
[00:02:57] Because it was found all over the world, and humans aren’t so different, it was seen as an attractive metal by societies everywhere, from the Ancient Egyptians to the Aztecs, Ancient Greece to Mali in West Africa.
[00:03:14] And although it is very malleable, it can bend and be moulded into new shapes, it is an incredibly resistant metal.
[00:03:23] It doesn’t corrode, it doesn’t get damaged, it doesn’t rust.
[00:03:27] It is almost as if, if you were going to design an element that had the perfect properties to be used as a type of money, gold would be it.
[00:03:38] And, as you may know, gold has been used as a form of money since ancient times, with the first recorded gold coin coming from Lydia, in modern-day Turkey, in 600 BC.
[00:03:54] Cities and countries started to mint their own gold coins, producing their own currency for use both domestically and with other states.
[00:04:05] And the good thing about using gold as money was that two different civilisations—whether they spoke different languages or had different customs—could trade their gold coins with one another.
[00:04:18] The coins might have been different, they had a different person’s head on them and they might have been a different shape, but they both contained a certain amount of gold, so they had intrinsic value.
[00:04:33] It was this combination of factors - the rarity, the durability, the malleability and the beauty - that made it uniquely valuable and suitable as a form of money.
[00:04:46] But gold wasn’t always the most practical form of money.
[00:04:50] It was so valuable that even the smallest coins were often equivalent to a week or more’s salary, so it couldn’t be used for smaller transactions - paying for a loaf of bread or something like that.
[00:05:03] So other coins tended to be used, made out of less valuable materials like silver.
[00:05:10] And gold wasn’t great for very large transactions either, because it wasn’t exactly convenient to carry around bags of gold coins.
[00:05:21] This led to the creation of a system where people could store their gold safely with someone else and in return, they would receive a piece of paper that said, “This paper represents a certain amount of gold.”
[00:05:35] It was a note from a bank, a banknote, paper money.
[00:05:40] The paper itself, the physical material the note was made out of, had no intrinsic value, but it was the fact that it could be legally exchanged into gold that meant the paper did have implied value.
[00:05:57] And that, in simplified form, was the beginning of paper money backed by gold, also known as the gold standard.
[00:06:07] So, how exactly did the gold standard work in practice?
[00:06:12] Under a gold standard, a country’s currency was directly linked to a specific amount of gold.
[00:06:20] The government promised that anyone holding a certain amount of paper money could, if they so wanted, exchange it for a fixed amount of gold.
[00:06:31] Britain was the first major country to adopt this system, thanks in part to Sir Isaac Newton.
[00:06:39] Now, you might know Isaac Newton as the man who sat under a tree and an apple fell on his head and he then understood how gravity works.
[00:06:50] He was also the so-called “Master Of The Mint”, meaning he was in charge of the British monetary system.
[00:06:58] In Britain, silver was originally used for most trading, but as more silver flowed to China—whose enormous economy absorbed vast amounts of the stuff— Newton decided to take action.
[00:07:13] He set a fixed exchange rate between silver and gold, and overvalued gold compared to silver.
[00:07:22] This encouraged people to use gold instead of silver, and this helped shift the country from a bimetallic system to a de facto gold standard, a monetary system based around gold.
[00:07:38] And in 1821, the United Kingdom became the first major country to officially adopt the gold standard, setting the value of the British pound at 1 pound equalling 0.25 ounces of gold.
[00:07:56] This gold standard meant that anyone with a 1 pound note could go to the Bank of England and swap their £1 note for 0.25 ounces of gold.
[00:08:09] The important thing was that they could, not that they should.
[00:08:14] Obviously, it would have been frustrating for everyone to be constantly going to the bank to swap paper money for gold, and then gold back to paper money when they needed to buy something, but the important thing was that they knew that they could get gold if they needed to.
[00:08:32] And this belief that paper money was backed by something universally valuable built tremendous trust in the financial system, and helped facilitate international trade for Britain.
[00:08:46] As the world’s leading economic power at the time, Britain’s move to the gold standard in 1821 set a global precedent.
[00:08:55] Other nations, seeing its benefits, soon followed suit.
[00:09:00] First was Canada, in 1853, then Germany and the United States, and by 1873 the gold standard had become the basis for the global monetary system.
[00:09:13] This expansion of the gold standard wasn’t just a matter of policy—it was also enabled by the huge amounts of gold entering circulation after the gold rushes of the mid-19th century, particularly in California and Australia.
[00:09:30] These discoveries flooded global markets with gold, making international trade easier and more reliable and allowing more countries to join the gold standard system.
[00:09:42] Currencies were tied to each other, and these currencies in turn were tied to the amount of gold that existed in the reserves of the central banks of these countries.
[00:09:55] This had a great stabilising act.
[00:09:58] Because each country’s currency was tied to gold, the value of currencies between countries became more predictable.
[00:10:09] This made international trade much easier, as countries could trade with one another confidently, knowing that exchange rates would remain stable.
[00:10:21] Another benefit was that the gold standard prevented governments from printing too much money.
[00:10:27] Since the amount of money in circulation was tied to the amount of gold a country had in its reserves, governments couldn’t simply print money whenever they wanted.
[00:10:40] This helped to control inflation and maintain the value of the currency.
[00:10:46] One of the reasons that prices for everything increased in 2022 was that governments printed vast amounts of money to stimulate the economy during COVID-19, meaning that the value of each unit of currency was reduced.
[00:11:02] Under a gold standard system, this can’t happen because a country needs to have enough gold in its reserves to maintain its currency, the amount of gold needs to be proportionate to the amount of money in circulation.
[00:11:18] In other words, if a government prints an extra 10 billion pounds, it needs to add an extra 10 billion pounds worth of gold to its reserves, because the paper money is tied to physical gold.
[00:11:33] But, while the gold standard was a good thing in terms of reducing the probability of inflation, it greatly reduced the ability of a country and its government to intervene in the economy if it needed to.
[00:11:47] Take, for example, COVID-19.
[00:11:51] Governments around the world injected large amounts of money into the economy, doing everything from handing out cash to individuals to giving low-interest loans to businesses.
[00:12:02] This money came from somewhere - it was printed by the central banks.
[00:12:08] This was possible because we don’t have the gold standard anymore, as we’ll come to talk about in a bit.
[00:12:15] And in fact, it was the need to react to a crisis and the inability to do so that caused the first big problem for the gold standard.
[00:12:26] With the outbreak of World War One, countries like the UK, France and Germany needed the flexibility to print more money to fund their war efforts, but the rigid structure of the gold standard simply didn’t allow for that.
[00:12:42] They needed to increase the money supply without worrying about having enough gold reserves to back up every note in circulation.
[00:12:51] So, they left, or rather, they temporarily abandoned their commitment to the gold standard.
[00:12:58] No longer could a citizen go to a central bank and exchange their banknotes for gold.
[00:13:04] But, as with many “temporary” measures, things didn’t quite go back to normal after the war ended.
[00:13:11] Although many countries returned to some form of the gold standard in the 1920s, the global economy had changed significantly, and it wasn’t simply a case of going back to something that had worked 10 years earlier.
[00:13:27] When the Great Depression hit in the early 1930s, it made returning to the gold standard even more difficult.
[00:13:35] Economies around the world faced severe hardship, and governments needed more control over their financial systems to manage the crisis.
[00:13:44] However, the rigid structure of the gold standard tied their hands - they couldn’t print more money, and instead had to do things like cut government spending and reduce wages - Many economists argue this is one of the reasons the Great Depression was so devastating.
[00:14:03] Soon, enough, countries started to abandon the gold standard, starting with Britain in September 1931.
[00:14:12] No longer could a citizen go to the bank and exchange their pounds for gold.
[00:14:18] However, this didn’t completely free Britain from the influence of gold.
[00:14:24] The British pound became tied to the U.S. dollar, which was still backed by gold.
[00:14:31] The dollar had become the central currency of the global monetary system, and this arrangement continued even after World War II.
[00:14:41] In 1944, world leaders met at a conference in Bretton Woods, in New Hampshire, to design a new international monetary system.
[00:14:51] This conference is probably best known for creating institutions like the World Bank and the IMF, which were designed to help manage global monetary policy and promote economic stability after the war.
[00:15:06] But another key element of this was the pegging of the world’s largest currencies to the U.S. dollar, which was, in turn, pegged to gold at a fixed rate of $35 per ounce.
[00:15:22] So, effectively there was a global gold standard because every key currency - the British pound, the French franc, the German Deutsche Mark, and the Japanese yen - they were all tied to the US dollar, which was exchangeable for gold.
[00:15:39] This system worked for a while, providing some stability after the war.
[00:15:45] However, by the 1960s, the U.S. was printing more and more dollars to fund its involvement in the Vietnam War and its domestic programs, without having enough gold to back all the dollars in circulation.
[00:16:01] In 1971, the situation came to a head.
[00:16:06] Countries like France, which held large amounts of U.S. dollars, began to demand gold in exchange for their dollars.
[00:16:16] Essentially, they started to lose trust in the value of the paper money, the dollars that they held, and they called for their right to exchange it into physical gold, which did have intrinsic value, because of all of its physical properties that you knew about already and we listed at the start of the episode.
[00:16:37] The problem was the U.S. didn’t have enough gold to cover these demands, so when President Richard Nixon saw this he made the dramatic decision to suspend the dollar’s convertibility into gold.
[00:16:54] In other words, he said, “Nope, US dollars are no longer backed by gold”.
[00:17:01] This was called the Nixon Shock, and it effectively ended the Bretton Woods system and the last official link between gold and global currencies.
[00:17:14] From 1971 onward, currencies around the world were allowed to “float”.
[00:17:20] That meant their value would be determined by the market—by supply and demand—rather than by a fixed amount of gold.
[00:17:30] And this is the situation we have today.
[00:17:33] At the time I’m recording this, €1.00 will buy you $1.10.
[00:17:40] But tomorrow it might buy you $1.09 or $1.11 or more or less, depending on the perceived value of the Euro and the dollar.
[00:17:52] These dollars and Euros are not backed by anything physical. The entire system is based on trust in the government that issues them.
[00:18:03] This is called a fiat money system.
[00:18:07] Fiat money is essentially paper currency that has no intrinsic value; its value is based on trust in the issuing body.
[00:18:18] And with a fiat money system as opposed to a gold standard system, governments have much more flexibility in managing their economies.
[00:18:27] They can adjust the money supply as needed, without having to worry about having enough gold in their reserves.
[00:18:35] But, it also means that there is no limit on how much money can be printed, which has its own set of risks, such as inflation, as we saw during the COVID-19 pandemic, or other forms of economic mismanagement as anyone from Turkey or Venezuela or even Zimbabwe will know all too well.
[00:18:58] And if you have heard talk of the gold standard in the news over the past few years, it might have been in connection with Bitcoin.
[00:19:08] Proponents of Bitcoin have called it “digital gold”, in that it has many of the same properties as gold: it is decentralised [not owned or controlled by one country or organisation], there is a finite supply, it is increasingly expensive to obtain, and as a result, it is not subject to inflation.
[00:19:31] But, unlike gold, it has no intrinsic value, it is computer code and its only value is because other people agree that it is valuable.
[00:19:43] Now, while most economists today believe that moving away from the gold standard was the right decision, there are still some people who argue that we should return to it.
[00:19:55] They believe that a gold standard would bring more stability to the global economy, would force governments to balance their budgets and prevent them from printing too much money which causes inflation.
[00:20:09] To wrap things up, the gold standard was a fascinating piece of economic history that was in place in some shape or form for the majority of the past 150 years.
[00:20:21] The famous economist John Maynard Keynes once called gold ‘a barbarous relic’, suggesting that it was both uncivilised and inappropriate for use in a modern society.
[00:20:34] Whether you agree with him or not, the move away from the gold standard marked a huge shift in how we think about money.
[00:20:43] Gold has value because we believe it does, and because of what we think we can do with it—whether that’s wearing something shiny on our neck or storing wealth for future generations.
[00:20:56] But in the 21st century, value isn’t just about physical things; it’s about trust and belief in the financial system.
[00:21:06] Money has value because we say it does, or rather, because governments say it does.
[00:21:13] Bringing it all the way back to the start of the episode, Scrooge McDuck’s greatest pleasure was unlocking the giant door to his money bin and jumping around in his pile of gold.
[00:21:27] Scrooge McDuck in 2024 would probably simply pick up his iPhone and check his bank balance, counting the many many zeros on the screen.
[00:21:38] It is a lot less shiny, but the question I’ll leave you with is this: is it any less real?
[00:21:48] OK then, that is it for today's episode on the gold standard.
[00:21:53] I know we went quite deep into economic theory and it was a little different from an adventurous tale of a robbery or scandal, but I hope it was an interesting one nevertheless.
[00:22:04] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:22:09] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:21] I'm Alastair Budge, and today we are going to be talking about gold.
[00:00:26] And more specifically, the gold standard, the system during which paper money was directly convertible to physical gold.
[00:00:36] If you have never heard of this before, it might seem strange, an unusual system, but it was an incredibly important part of economic history.
[00:00:46] So, in this episode, we’ll talk about where it came from, how it worked, its advantages and disadvantages, why it was eventually abandoned, and why some people are now calling for its return.
[00:01:00] OK then, let’s not waste another minute, and get talking about the gold standard.
[00:01:07] If you watched Donald Duck cartoons as a child, you might remember Donald’s uncle, Scrooge McDuck.
[00:01:15] He is an extremely rich duck and spends his days thinking about his money and ways he can make more of it.
[00:01:25] All of his money is kept in “The Money Bin”, and one of Scrooge McDuck’s favourite things to do is to dive into his huge stash of gold coins.
[00:01:38] It is a symbol of extreme wealth - everyone watching it immediately recognises that this means he is a rich man.
[00:01:47] But, why?
[00:01:49] Why is gold seen as a symbol of wealth?
[00:01:52] And how did it come to be so valuable?
[00:01:56] The simplistic answer is “It looks pretty and is shiny”, and this is of course true, but there are some nuances to this, some additional factors.
[00:02:08] Firstly, the value of something tends to be linked to how rare it is and how hard it is to get.
[00:02:16] Gold can be found all over the world. The problem is that getting gold out of the ground is difficult and expensive.
[00:02:25] So that’s the first thing: it’s difficult to get, therefore it is relatively rare.
[00:02:30] Secondly, it's incredibly malleable, meaning that you can bend it and change its shape without breaking it. You can melt it down and create something new with it, and the gold will work just as well.
[00:02:45] Thirdly, and helped by the previous reason, you can make beautiful things with it, shiny jewellery, crowns, and other decorative items that look nice.
[00:02:57] Because it was found all over the world, and humans aren’t so different, it was seen as an attractive metal by societies everywhere, from the Ancient Egyptians to the Aztecs, Ancient Greece to Mali in West Africa.
[00:03:14] And although it is very malleable, it can bend and be moulded into new shapes, it is an incredibly resistant metal.
[00:03:23] It doesn’t corrode, it doesn’t get damaged, it doesn’t rust.
[00:03:27] It is almost as if, if you were going to design an element that had the perfect properties to be used as a type of money, gold would be it.
[00:03:38] And, as you may know, gold has been used as a form of money since ancient times, with the first recorded gold coin coming from Lydia, in modern-day Turkey, in 600 BC.
[00:03:54] Cities and countries started to mint their own gold coins, producing their own currency for use both domestically and with other states.
[00:04:05] And the good thing about using gold as money was that two different civilisations—whether they spoke different languages or had different customs—could trade their gold coins with one another.
[00:04:18] The coins might have been different, they had a different person’s head on them and they might have been a different shape, but they both contained a certain amount of gold, so they had intrinsic value.
[00:04:33] It was this combination of factors - the rarity, the durability, the malleability and the beauty - that made it uniquely valuable and suitable as a form of money.
[00:04:46] But gold wasn’t always the most practical form of money.
[00:04:50] It was so valuable that even the smallest coins were often equivalent to a week or more’s salary, so it couldn’t be used for smaller transactions - paying for a loaf of bread or something like that.
[00:05:03] So other coins tended to be used, made out of less valuable materials like silver.
[00:05:10] And gold wasn’t great for very large transactions either, because it wasn’t exactly convenient to carry around bags of gold coins.
[00:05:21] This led to the creation of a system where people could store their gold safely with someone else and in return, they would receive a piece of paper that said, “This paper represents a certain amount of gold.”
[00:05:35] It was a note from a bank, a banknote, paper money.
[00:05:40] The paper itself, the physical material the note was made out of, had no intrinsic value, but it was the fact that it could be legally exchanged into gold that meant the paper did have implied value.
[00:05:57] And that, in simplified form, was the beginning of paper money backed by gold, also known as the gold standard.
[00:06:07] So, how exactly did the gold standard work in practice?
[00:06:12] Under a gold standard, a country’s currency was directly linked to a specific amount of gold.
[00:06:20] The government promised that anyone holding a certain amount of paper money could, if they so wanted, exchange it for a fixed amount of gold.
[00:06:31] Britain was the first major country to adopt this system, thanks in part to Sir Isaac Newton.
[00:06:39] Now, you might know Isaac Newton as the man who sat under a tree and an apple fell on his head and he then understood how gravity works.
[00:06:50] He was also the so-called “Master Of The Mint”, meaning he was in charge of the British monetary system.
[00:06:58] In Britain, silver was originally used for most trading, but as more silver flowed to China—whose enormous economy absorbed vast amounts of the stuff— Newton decided to take action.
[00:07:13] He set a fixed exchange rate between silver and gold, and overvalued gold compared to silver.
[00:07:22] This encouraged people to use gold instead of silver, and this helped shift the country from a bimetallic system to a de facto gold standard, a monetary system based around gold.
[00:07:38] And in 1821, the United Kingdom became the first major country to officially adopt the gold standard, setting the value of the British pound at 1 pound equalling 0.25 ounces of gold.
[00:07:56] This gold standard meant that anyone with a 1 pound note could go to the Bank of England and swap their £1 note for 0.25 ounces of gold.
[00:08:09] The important thing was that they could, not that they should.
[00:08:14] Obviously, it would have been frustrating for everyone to be constantly going to the bank to swap paper money for gold, and then gold back to paper money when they needed to buy something, but the important thing was that they knew that they could get gold if they needed to.
[00:08:32] And this belief that paper money was backed by something universally valuable built tremendous trust in the financial system, and helped facilitate international trade for Britain.
[00:08:46] As the world’s leading economic power at the time, Britain’s move to the gold standard in 1821 set a global precedent.
[00:08:55] Other nations, seeing its benefits, soon followed suit.
[00:09:00] First was Canada, in 1853, then Germany and the United States, and by 1873 the gold standard had become the basis for the global monetary system.
[00:09:13] This expansion of the gold standard wasn’t just a matter of policy—it was also enabled by the huge amounts of gold entering circulation after the gold rushes of the mid-19th century, particularly in California and Australia.
[00:09:30] These discoveries flooded global markets with gold, making international trade easier and more reliable and allowing more countries to join the gold standard system.
[00:09:42] Currencies were tied to each other, and these currencies in turn were tied to the amount of gold that existed in the reserves of the central banks of these countries.
[00:09:55] This had a great stabilising act.
[00:09:58] Because each country’s currency was tied to gold, the value of currencies between countries became more predictable.
[00:10:09] This made international trade much easier, as countries could trade with one another confidently, knowing that exchange rates would remain stable.
[00:10:21] Another benefit was that the gold standard prevented governments from printing too much money.
[00:10:27] Since the amount of money in circulation was tied to the amount of gold a country had in its reserves, governments couldn’t simply print money whenever they wanted.
[00:10:40] This helped to control inflation and maintain the value of the currency.
[00:10:46] One of the reasons that prices for everything increased in 2022 was that governments printed vast amounts of money to stimulate the economy during COVID-19, meaning that the value of each unit of currency was reduced.
[00:11:02] Under a gold standard system, this can’t happen because a country needs to have enough gold in its reserves to maintain its currency, the amount of gold needs to be proportionate to the amount of money in circulation.
[00:11:18] In other words, if a government prints an extra 10 billion pounds, it needs to add an extra 10 billion pounds worth of gold to its reserves, because the paper money is tied to physical gold.
[00:11:33] But, while the gold standard was a good thing in terms of reducing the probability of inflation, it greatly reduced the ability of a country and its government to intervene in the economy if it needed to.
[00:11:47] Take, for example, COVID-19.
[00:11:51] Governments around the world injected large amounts of money into the economy, doing everything from handing out cash to individuals to giving low-interest loans to businesses.
[00:12:02] This money came from somewhere - it was printed by the central banks.
[00:12:08] This was possible because we don’t have the gold standard anymore, as we’ll come to talk about in a bit.
[00:12:15] And in fact, it was the need to react to a crisis and the inability to do so that caused the first big problem for the gold standard.
[00:12:26] With the outbreak of World War One, countries like the UK, France and Germany needed the flexibility to print more money to fund their war efforts, but the rigid structure of the gold standard simply didn’t allow for that.
[00:12:42] They needed to increase the money supply without worrying about having enough gold reserves to back up every note in circulation.
[00:12:51] So, they left, or rather, they temporarily abandoned their commitment to the gold standard.
[00:12:58] No longer could a citizen go to a central bank and exchange their banknotes for gold.
[00:13:04] But, as with many “temporary” measures, things didn’t quite go back to normal after the war ended.
[00:13:11] Although many countries returned to some form of the gold standard in the 1920s, the global economy had changed significantly, and it wasn’t simply a case of going back to something that had worked 10 years earlier.
[00:13:27] When the Great Depression hit in the early 1930s, it made returning to the gold standard even more difficult.
[00:13:35] Economies around the world faced severe hardship, and governments needed more control over their financial systems to manage the crisis.
[00:13:44] However, the rigid structure of the gold standard tied their hands - they couldn’t print more money, and instead had to do things like cut government spending and reduce wages - Many economists argue this is one of the reasons the Great Depression was so devastating.
[00:14:03] Soon, enough, countries started to abandon the gold standard, starting with Britain in September 1931.
[00:14:12] No longer could a citizen go to the bank and exchange their pounds for gold.
[00:14:18] However, this didn’t completely free Britain from the influence of gold.
[00:14:24] The British pound became tied to the U.S. dollar, which was still backed by gold.
[00:14:31] The dollar had become the central currency of the global monetary system, and this arrangement continued even after World War II.
[00:14:41] In 1944, world leaders met at a conference in Bretton Woods, in New Hampshire, to design a new international monetary system.
[00:14:51] This conference is probably best known for creating institutions like the World Bank and the IMF, which were designed to help manage global monetary policy and promote economic stability after the war.
[00:15:06] But another key element of this was the pegging of the world’s largest currencies to the U.S. dollar, which was, in turn, pegged to gold at a fixed rate of $35 per ounce.
[00:15:22] So, effectively there was a global gold standard because every key currency - the British pound, the French franc, the German Deutsche Mark, and the Japanese yen - they were all tied to the US dollar, which was exchangeable for gold.
[00:15:39] This system worked for a while, providing some stability after the war.
[00:15:45] However, by the 1960s, the U.S. was printing more and more dollars to fund its involvement in the Vietnam War and its domestic programs, without having enough gold to back all the dollars in circulation.
[00:16:01] In 1971, the situation came to a head.
[00:16:06] Countries like France, which held large amounts of U.S. dollars, began to demand gold in exchange for their dollars.
[00:16:16] Essentially, they started to lose trust in the value of the paper money, the dollars that they held, and they called for their right to exchange it into physical gold, which did have intrinsic value, because of all of its physical properties that you knew about already and we listed at the start of the episode.
[00:16:37] The problem was the U.S. didn’t have enough gold to cover these demands, so when President Richard Nixon saw this he made the dramatic decision to suspend the dollar’s convertibility into gold.
[00:16:54] In other words, he said, “Nope, US dollars are no longer backed by gold”.
[00:17:01] This was called the Nixon Shock, and it effectively ended the Bretton Woods system and the last official link between gold and global currencies.
[00:17:14] From 1971 onward, currencies around the world were allowed to “float”.
[00:17:20] That meant their value would be determined by the market—by supply and demand—rather than by a fixed amount of gold.
[00:17:30] And this is the situation we have today.
[00:17:33] At the time I’m recording this, €1.00 will buy you $1.10.
[00:17:40] But tomorrow it might buy you $1.09 or $1.11 or more or less, depending on the perceived value of the Euro and the dollar.
[00:17:52] These dollars and Euros are not backed by anything physical. The entire system is based on trust in the government that issues them.
[00:18:03] This is called a fiat money system.
[00:18:07] Fiat money is essentially paper currency that has no intrinsic value; its value is based on trust in the issuing body.
[00:18:18] And with a fiat money system as opposed to a gold standard system, governments have much more flexibility in managing their economies.
[00:18:27] They can adjust the money supply as needed, without having to worry about having enough gold in their reserves.
[00:18:35] But, it also means that there is no limit on how much money can be printed, which has its own set of risks, such as inflation, as we saw during the COVID-19 pandemic, or other forms of economic mismanagement as anyone from Turkey or Venezuela or even Zimbabwe will know all too well.
[00:18:58] And if you have heard talk of the gold standard in the news over the past few years, it might have been in connection with Bitcoin.
[00:19:08] Proponents of Bitcoin have called it “digital gold”, in that it has many of the same properties as gold: it is decentralised [not owned or controlled by one country or organisation], there is a finite supply, it is increasingly expensive to obtain, and as a result, it is not subject to inflation.
[00:19:31] But, unlike gold, it has no intrinsic value, it is computer code and its only value is because other people agree that it is valuable.
[00:19:43] Now, while most economists today believe that moving away from the gold standard was the right decision, there are still some people who argue that we should return to it.
[00:19:55] They believe that a gold standard would bring more stability to the global economy, would force governments to balance their budgets and prevent them from printing too much money which causes inflation.
[00:20:09] To wrap things up, the gold standard was a fascinating piece of economic history that was in place in some shape or form for the majority of the past 150 years.
[00:20:21] The famous economist John Maynard Keynes once called gold ‘a barbarous relic’, suggesting that it was both uncivilised and inappropriate for use in a modern society.
[00:20:34] Whether you agree with him or not, the move away from the gold standard marked a huge shift in how we think about money.
[00:20:43] Gold has value because we believe it does, and because of what we think we can do with it—whether that’s wearing something shiny on our neck or storing wealth for future generations.
[00:20:56] But in the 21st century, value isn’t just about physical things; it’s about trust and belief in the financial system.
[00:21:06] Money has value because we say it does, or rather, because governments say it does.
[00:21:13] Bringing it all the way back to the start of the episode, Scrooge McDuck’s greatest pleasure was unlocking the giant door to his money bin and jumping around in his pile of gold.
[00:21:27] Scrooge McDuck in 2024 would probably simply pick up his iPhone and check his bank balance, counting the many many zeros on the screen.
[00:21:38] It is a lot less shiny, but the question I’ll leave you with is this: is it any less real?
[00:21:48] OK then, that is it for today's episode on the gold standard.
[00:21:53] I know we went quite deep into economic theory and it was a little different from an adventurous tale of a robbery or scandal, but I hope it was an interesting one nevertheless.
[00:22:04] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:22:09] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
