22 mar. 2012

The Federal Reserve and the Financial Crisis : Forget the Gold Standard

Lecture from Chairman Bernake.
The gold standard does not hold a chance to see the light during Bernake's time. In summary :


Problems with the gold standard


·        In a gold standard, the value of the currency is fixed in terms of a  
         quantity of gold.
·        The gold standard sets the money supply and price level generally with
         limited central bank intervention
·        The strength of a gold standard is its greatest weakness too: Because
         the money supply is determined by the supply of gold, it cannot be
         adjusted in response to changing economic conditions.
·        All countries on the gold standard are forced to maintain fixed
         exchange rates.
·        As a result, the effects of bad policies in one country can be transmitted
         to other countries if both are on the gold standard.
·        If not perfectly credible, a gold standard is subject to speculative attack
         and ultimate collapse as people try to exchange paper money for gold.
·        The gold standard did not prevent frequent financial panics
·        Although the gold standard promoted price stability over the very long
         run, over the medium run it sometimes caused periods of inflation and
         deflation.

Full presentation here