What are the advantages of a currency system based on the Gold Standard?
Gold is indeed the standard. It always has been and always will be. It is the numeraire by which all goods and services are measured because gold is money. The advantage of the classical gold standard is that it provides an external discipline on the creation of currency. If too much currency is created by bank lending and the government printing press, the economy heats up, and the currency becomes overvalued. So gold leaves the country for other countries and other currencies where it can purchase more. The classical gold standard provides a very natural mechanism that controls the expansion of credit, and therefore the value of currencies. The big imbalances today in world trade occur simply because there is no mechanism to bring order and balance to world trade. The huge sovereign wealth funds amassed today by many countries could never have happened under the classical gold standard. Do you feel that the current financial crisis would never have occurred if the world was still on
