Should the U.S Return to a Gold Standard
Introduction
When a country opts to tie their money value to the amount of gold they possess is referred to as the gold standard unit. In this light, the citizens are required to present the paper money in the possession and be exchanged with an agreed amount of gold known as the “par value,” which helps to facilitate trade. The U.S abolished the gold standard trade-in 1973, and the motive to return to the use of gold standard have been delayed due to various reasons (Eichengreen,2019)
Notably, the motive will be a constraint to the U.S government in managing the economy. In this case, in time of inflation, which needs to be restored by reducing the money in supply by increasing the interest rate will not be achieved. Similarly, during the recession periods, it will be challenging to raise the money supply by lowering the interest rates. This will limit government intervention, balance the budget as well as fiscal discipline enforcement (Nagin, Daniel, and Robert,130)
Economic growth may be inhibited if the gold standard is in operation (Eichengreen,2019). In this light, there exists a fixed money supply during “par value” since it depends on gold in reserves, which may lead to a lack of capital; therefore, many businesses may not be founded. The United States may also restrict from moving to the system since the other countries have not turned to it since, if it changes, the rest of the countries would demand America to change their dollar into gold, for it is used many countries in the world. This will cause the depletion of United States gold in reserve. Gold reserves helped America to cause the great depression.
The United States may not be able to settle its debt owed to foreign investors if the money is to be exchanged with the current gold rate. Moreover, America lacks enough gold to pay off its debts to China, Japan, and other countries.
Conclusion
United States today is the most venerable trade partner in the global economy. For this reason, it may not inconvenience the central banks in the world who are responsible for managing the monetary policies in the world.