why gold 
most commodity money advocates choose gold as a medium of exchange because of its intrinsic properties gold has non monetary uses especially in jewelry electronics and dentistry so it should always retain a minimum level of real demand it is perfectly and evenly divisible without losing value unlike diamonds and does not spoil over time it is impossible to counterfeit perfectly and has a fixed stock there is only so much gold on earth and inflation is limited to the speed of mining advantages and disadvantages of the gold standardthere are many advantages to using the gold standard including price stability this is a long term advantage that makes it harder for governments to inflate prices by expanding the money supply inflation is rare and hyperinflation doesn t happen because the money supply can only grow if the supply of gold reserves increases similarly the gold standard can provide fixed international rates between countries that participate and can also reduce the uncertainty in international trade but it may cause an imbalance between countries that participate in the gold standard gold producing nations may be at an advantage over those that don t produce the precious metal thereby increasing their reserves the gold standard may also according to some economists prevent the mitigation of economic recessions because it hinders the ability of a government to increase its money supply a tool many central banks have to help boost economic growth history of the gold standardaround 650 b c gold was made into coins for the first time enhancing its usability as a monetary unit before this gold had to be weighed and checked for purity when settling trades 1gold coins were not a perfect solution since a common practice for centuries to come was to clip these slightly irregular coins to accumulate enough gold that could be melted down into bullion in 1696 the great recoinage in england introduced a technology that automated the production of coins and put an end to clipping 2the u s constitution in 1789 gave congress the sole right to coin money and the power to regulate its value creating a united national currency enabled the standardization of a monetary system that had up until then consisted of circulating foreign coins mostly silver 3with silver in greater abundance relative to gold a bimetallic standard was adopted in 1792 while the officially adopted silver to gold parity ratio of 15 1 accurately reflected the market ratio at the time after 1793 the value of silver steadily declined pushing gold out of circulation according to gresham s law 4the gold standard is not currently used by any government britain stopped using the gold standard in 1931 and the u s followed suit in 1933 and abandoned the remnants of the system in 1973 56the so called classical gold standard era began in england in 1819 and spread to france germany switzerland belgium and the united states each government pegged its national currency to a fixed weight in gold for example by 1834 u s dollars were convertible to gold at a rate of 20 67 per ounce these parity rates were used to price international transactions other countries later joined to gain access to western trade markets 78there were many interruptions in the gold standard especially during wartime and many countries experimented with bimetallic gold and silver standards governments frequently spent more than their gold reserves could back and suspensions of national gold standards were extremely common moreover governments struggled to correctly peg the relationship between their national currencies and gold without creating distortions as long as governments or central banks retained monopoly privileges over the supply of national currencies the gold standard proved an ineffective or inconsistent restraint on fiscal policy the gold standard slowly eroded during the 20th century this began in the united states in 1933 when franklin delano roosevelt signed an executive order criminalizing the private possession of monetary gold 9after wwii the bretton woods agreement forced allied countries to accept the u s dollar as a reserve rather than gold and the u s government pledged to keep enough gold to back its dollars in 1971 the nixon administration terminated the convertibility of u s dollars to gold creating a fiat currency regime 1011the gold standard vs fiat moneyas its name suggests the term gold standard refers to a monetary system in which the value of a currency is based on gold a fiat system by contrast is a monetary system in which the value of a currency is not based on any physical commodity but is instead allowed to fluctuate dynamically against other currencies on the foreign exchange markets the term fiat is derived from the latin fieri meaning an arbitrary act or decree in keeping with this etymology the value of fiat currencies is ultimately based on the fact that they are defined as legal tender by government decree in the decades prior to the first world war international trade was conducted on the basis of what has come to be known as the classical gold standard in this system trade between nations was settled using physical gold nations with trade surpluses accumulated gold as payment for their exports conversely nations with trade deficits saw their gold reserves decline as gold flowed out of those nations as payment for their imports 