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A sound monetary system is one in which a currency is backed by gold, at least a percentage or fixed weight of gold. This is different from the monetary system currently used in the United States and many other countries. Today, all national currencies are fiat currencies. Fiat currency is currency that has value only because of government regulation or law of which carries no intrinsic value of any kind.

At the time of the Great Depression, numerous countries went away from the gold standard since they had to pump money into their economies to stimulate growth. Having a gold standard would not allow them adequate economic flexibility. It is also true that there can actually be too much economic flexibility.

Additional ethical hazards with flexible monetary policies created are currency values that can be influenced for the benefit of a countries trade. Thus by devaluing its currency, a country can get an unfair advantage over other countries for its exports, since their goods would become comparatively cheaper. Should countries start competing beside each other in this manner, worldwide trade as well as currency exchange may well get out of control.  This is exactly what China has been doing now for a very long time.

For many of the above reasons, in 1944 the Bretton Woods Agreement was signed by all countries and the creation of the IMF International Monetary Fund was born. Now many of the world’s major currencies would be fixed to the US. dollar, and the US. dollar would be convertible to gold at the rate of $35.00 per ounce. The Bretton Woods system now had several of the advantages of a gold standard with some of the flexibility of a full fiat currency.

Unfortunately due to major fiscal demands over the Vietnam War and many European countries like France trading in their US.dollar supplies for gold President Nixon was forced into signing an executive order ending the Bretton Woods Agreement back in 1971.   Immediately this removed the US.dollar from the gold standard, creating the floating exchange system currently in use today.

As the current global financial crisis is being combated by central banks worldwide, they now are tempted by the ethical hazards that were widespread during the Great Depression? Will currencies be devalued allowing a competitive advantage for exports? Will currencies be inflated to help pay off global debt?

Governments and central banks have done a significant job thus far except for China in resisting such temptations. Possibly the euro has even helped Europe's case. Confronted in the midst of crippling debt, Spain and Greece possibly would have sought to devalue their currencies by now if they were still allowed to control it.

Widespread debt amid many households is yet another additional pressure during the current finanical crisis. Households that still are employed, usually still are weighted down carrying a high level of debt.  Credit card or mortgage debt would greatly benefit in times of inflation if their debt was at a fixed rate, due to slightly higher wages to help offset inflation making it easier to pay down the debt.

The Greenback Party in the 1870’s – 1880’s wanted to go  back to a paper-based or fiat currency system the same type of system used during the Civil War because greenbacks would allow for inflation. This would assist farmers to receive market prices for their fruits and vegetables making it easier to pay back their debts.

Might over-leveraged homeowners get together supporting an inflationary program?  Might a movement such as this become popular today?  The chances of this happening within the current political climate are slim to none. Nowadays people are much more concerned with wasteful government spending and budget deficits. To re-instate the gold standard today –now would surely put the brakes on the disastrous train wreck our economy is currently heading into by allowing stronger fiscal discipline.

An additional factor which could temper the call for inflation is the abnormally high level of the unemployed.  These folks will unfortunately become the largest casualties from an inflationary policy.  With a lot of expenses and little to no income these people would surely be squeezed even further by higher prices.

To take on an outright inflationary monetary policy or re-instate the gold standard  would be an severe course to take however history shows that hastily trying to do any belt-tightening might extend the downturn that the economy is now in or even cause the recession to take a double dip. Despite deficit spending and fiscal controls the government is going to have to cover the void in the economy it created until the private sector finally recovers. Inflation or even hyperinflation could become reality.

You should try best covering yourself against monetary losses as much as possible with the trying times ahead in our economy. One way to come out ahead of the pending economic crises is to purchase physical gold and silver. Throughout history gold and silver have always retained their value especially at times when fiat currencies begin to erode and become devalued. Over time history always repeats itself.

Tom Genot -

About The Author:

For informational, news, articles and videos for investing in gold and silver and where the best places are to buy it. You will also find information for preparing and protecting you, your family and your assets from the pending economic crises and destruction of the US dollar. Author Tom Genot, provides information and resources helpful to everyone. Insure you’re prepared beforehand. Check us out at www.coinbullion.net