As of 2022, none of the world's countries use the gold standard. However, several countries used it in the past. The gold standard was a monetary system in which the value of a country's currency, such as the United States dollar or the British pound, was tied to the value of a specific amount of gold. Originally conceived as a way to stabilize prices and prevent inflation (because paper money was backed by physical gold held in reserve), the gold standard was officially adopted by the United Kingdom in 1812. Other countries followed, including the United States, Germany, and France in the 1870s.
While the tethering of paper money to real-world gold reserves was meant to make the gold standard more stable, most economists today argue that it failed in this function. Moreover, the gold standard clearly reduced governments' flexibility when reacting to economic changes—for example, the government could not increase the money supply to increase employment during a recession. This rigidity proved particularly problematic in 1914, when the outbreak of World War I threw many countries' financial systems into chaos, forcing governments to abandon the gold standard in the face of consumer concerns and economic instability.
Evolved variations of the gold standard with slightly less strict connections to real-world reserves were adopted by several countries in the 1920s. However, few of these systems lasted through the Great Depression and World War II. Today, global gold production would likely be unable to keep pace with economic growth, making the gold standard logistically impractical.
Countries that Previously Used the Gold Standard:
The Gold Standard in the United Kingdom
Great Britain became the first country to adopt the gold standard—albeit accidentally—in 1717. Sir Isaac Newton, who was the Master of the Royal Mint at the time, mistakenly set the exchange rate for silver to gold too low. This resulted in such a run on gold that all the silver coins in the country were traded in for gold.
The U.K. officially adopted the classical gold standard in 1821, only to leave in 1914. Britain later joined the Interwar Gold Standard in 1925 but stopped using the Gold Standard for the final time in 1931.
The Gold Standard in the United States
Despite the fact that the United States currently holds the world’s largest gold reserves, the country officially moved on from the gold standard in 1933. However, the US also returned to the concept by adopting the Bretton Woods Agreement in 1944. Bretton Woods was designed as an international-only gold standard, in which the United States dollar became the dominant reserve currency and currencies from other nations were pegged to its value, but still backed by U.S. gold. Over time, however, the agreement led to too much U.S. gold being transferred out of the country. The U.S. suspended the Bretton Woods Agreement in 1971, and changed the definition of the dollar—officially removing the last remnants of the gold standard—in 1976.
The Gold Standard in Germany
Germany first adopted the gold standard in 1871, a move largely attributed to the development of the International Gold Standard. Germany's change is credited with influencing several other countries to also adopt the gold standard, including Russia, Austria-Hungary, Italy, and the Netherlands.
Germany went off the gold standard in 1914, due in large part to the fact that war reparations had depleted the country's gold reserves. Germany returned to a gold-based system (or the phantom of one) in 1923 (as did Austria in 1923, Poland in 1924, and Hungary in 1925) to combat post-WWI hyperinflation, but ultimately abandoned it for good.
The Gold Standard in France
When it comes to the gold standard, France is famous for having led the "gold bloc." In 1931, during the Great Depression, many countries, including Great Britain, Denmark, Norway, Sweden, Finland, and Japan, chose to abandon the gold standard. However, France and the other members of the gold bloc—Belgium, Italy, Luxembourg, the Netherlands, Poland, and Switzerland—were determined to remain on the gold standard. Ultimately, the goal proved untenable. Belgium and Luxembourg gave up the gold standard in 1935, and France and the remaing gold bloc countries abandoned it with the signing of the Tripartite Agreement in September 1936.
The Gold Standard in Switzerland
Switzerland is one of the top countries with the largest gold reserves, and was also the last country to eliminate its connection to the gold standard. In 1999, the country voted to sever ties between the country’s currency and gold, meaning the Swiss franc need not be backed by gold.
In 2014, Switzerland seemed poised to return to the gold standard under the “Save our Swiss Gold” motion. This initiative stipulated that the Swiss National Bank’s assets should include at least 20% gold, and the SNB should be banned from selling gold or storing its gold reserves abroad. However, the initiative was rejected by voters and ultimately failed.
