The reason why the U.S. dollar is called the U.S. dollar is because the U.S. dollar and gold are equivalent, and as many U.S. dollars as there are must be as much gold in the U.S., which is called the "Bretton Woods System" in finance.
The Bretton Woods system established after World War II stipulates that the U.S. dollar is the main international reserve currency. The U.S. dollar is directly linked to gold, and the currencies of various countries are linked to the U.S. dollar, and can be exchanged for gold in the United States at the official price of $35 per ounce. This is the beginning of the gold standard system.
How was the gold standard born? How it disintegrated, here I will give a detailed introduction in three steps, namely: the creation of the gold standard by Newton, the abolition of the gold standard by Zhu Yuanzhang, and the complete disintegration of the gold standard.
1. Newton established the gold standard
The gold standard is a monetary system based on gold as the standard currency. The first country to implement the gold standard was Britain, which was proposed by the well-known physicist, mathematician, scientist and philosopher Newton.
According to historical records, Newton has been engaged in scientific research for nearly 30 years, and it took nearly 30 years for him to abandon his studies and enter politics. It was during his time in politics that Newton successfully solved the problems encountered in the recasting of British currency and became a person who made great contributions to the history of hero coinage and even the history of world coinage.
In 1699, at the age of 55, Newton came to the Tower of London, which was the only mint in England at that time. At this time, Newton also had a new identity as "Director of the Royal Mint". Newton, who became the director of the Mint, began to Work started.
In 1717, Newton put forward a new policy proposition, which is to fix the price ratio between gold and British pounds at a unified standard, and not allow anyone to exchange gold at a different price. This is the beginning of the gold standard , using gold as collateral to fix other currencies with fixed prices and standards. Since then, gold has become the main role in currency guarantees, which also laid the foundation for the subsequent gold standard system.
It can be seen that what Newton wants to create is a currency as good as gold, that is, a currency as stable as gold. The only effective way to do this is to fix the exchange rate between the British pound and gold.
In addition, due to the outflow of silver and the inflow of gold at that time, the relationship between gold and silver has undergone a sharp change, and the British currency system has been in disorder. The most urgent measure is to maintain the stability of the currency system.
The contract, this is the main factor that really binds gold and the British pound. This is the standardization of exchange. The exchange standard is a contract. Gold and the British pound are closely linked through a unified exchange standard. In this contract Under the background constraints of the United Kingdom, the United Kingdom stood with gold.
The gold standard has the following characteristics -
Feature 1: Gold is used to define the value represented by the currency. Each currency unit has a legal gold content, and the currencies of various countries have a certain price ratio according to the weight of the gold they contain.
Feature 2: Gold coins can be minted freely, and anyone can hand over gold nuggets to the National Mint to be minted into gold coins according to the gold content of the standard currency.
Feature 3: Gold coins are currency with unlimited legal compensation and have the right to unlimited means of payment.
Feature 4: The currency reserves of various countries are gold, and gold is also used in international settlements. Gold can be exported and imported freely.
Feature 5: Since gold can be freely transferred between countries, this ensures the relative stability of the foreign exchange market and the unity of the international financial market.
However, with the development of time and economic development, the gold standard system has disintegrated.
2. Zhu Yuanzhang abolished the gold standard
The first banknotes appeared in China during the Northern Song Dynasty. Compared with the commonly used silver and gold, people immediately found that banknotes had many advantages, and were easy to carry, and soon became widely used.
Since the day when banknotes appeared, the status and authority of precious metals, led by gold, as currency in circulation have been strongly challenged. Gold is expensive and difficult to carry, while banknotes are cheap and easy to carry.
Zhu Yuanzhang in Chinese history, he used his power to change the rules of the game, because he decided to repair the city wall of Nanjing, the capital, and lacked funds, he forcibly issued pure credit banknotes. A banknote called Daming Tongxing Baochao began to spread nationwide. In order to promote and guarantee the circulation of Ming Dynasty banknotes, Zhu Yuanzhang specially enacted strict laws that the use of gold and silver was not allowed among the people, and offenders would be punished with felonies. This move was called "banning silver" in history. In this way, Zhu Yuanzhang became the first person in Chinese history to free a country from gold and silver.
Since then, banknotes have been successfully separated from the jurisdiction and shackles of gold, and the characteristics of physical guarantees have been freed, and the issuance of banknotes is purely placed on national credit. This can be said to have far-reaching influence in world history. This is also the successful disintegration of the gold standard in Chinese history. Start!
3. The complete disintegration of the gold standard
After the Second World War, an international monetary system centered on the US dollar was established. This is actually a gold exchange standard system. The United States does not circulate gold coins, but allows other governments to exchange gold with US dollars. The US dollar is the currency of other countries. The country's main reserve asset.
However, under the impact of the dollar crisis, the system gradually began to falter. In August 1971, the U.S. government stopped converting the U.S. dollar to gold and devalued the U.S. dollar twice. This incomplete system also collapsed.
The gold standard system has been in use for about 100 years, and the main reasons for its collapse are as follows——
The first point: the growth rate of gold production is much lower than the growth rate of commodity production.
The second point: the distribution of gold stocks among countries is uneven.
The third point: gold was concentrated by the warring countries to buy arms.
Specifically, the growth rate of gold production was far lower than that of commodity production, and gold could not meet the ever-expanding needs of commodity circulation, which greatly weakened the foundation of gold coin circulation.
The unbalanced distribution of gold stocks in various countries is because at the end of 1913, the United States, Britain, Germany, France, and Russia accounted for two-thirds of the world's gold stocks. Minting and free circulation were disrupted, weakening the basis for the circulation of gold coins in other countries.
When the First World War broke out, gold was used by participating countries to purchase arms, and the free export and cashing of bank notes were stopped, which eventually led to the collapse of the gold standard system.
The U.S. dollar and gold have always been the focus of attention during the development of the world economy. A slight fluctuation in the price between the U.S. dollar and gold will affect the global economic trend.
What investors should know is that the U.S. dollar is not only the legal tender of the United States, but also an international settlement currency. In the investment market, the U.S. dollar index is usually used to analyze the trend of the U.S. dollar. The U.S. dollar index is an indicator that comprehensively reflects the exchange rate of the U.S. dollar in the international foreign exchange market.
This indicator can indirectly reflect changes in US export competitiveness and import costs. If the US dollar index falls, it means that the US dollar has depreciated against other major currencies.
Gold has the attribute of currency. Because of this characteristic, gold can be used as an international settlement currency and has commodity credit that cannot be controlled by human beings. Once the banknotes based on national credit are impacted, the currency attribute of gold will gradually become prominent.
Today's world monetary system is based on the gold of the central bank or the Ministry of Finance. In the context of the financial crisis, the dollar weakened and weakened. At this time, the importance of gold was mentioned on the international economic stage.
Therefore, there is a weak correlation between gold and the US dollar in the opposite direction, as shown in the figure below.
That is to say, as the price currency in the international gold market, the appreciation or depreciation of the U.S. dollar will directly affect the international gold supply and demand relationship.
Changes in the price of gold in US dollars follow the most basic economic laws and are determined by supply and demand. Since gold is denominated in US dollars, when the US dollar depreciates, the same amount of other currencies can buy more gold, thereby stimulating demand and leading to gold prices. The demand for gold increased, which in turn pushed the price of gold higher.
Gold is an alternative investment tool for U.S. dollar assets. When the U.S. dollar is in a strong trend, the chances of investing in the appreciation of the U.S. dollar increase, and investors will naturally chase the U.S. dollar; on the contrary, when the U.S. dollar is weak, investors will tend to invest in gold. The price will show an upward trend.
According to the relationship between the US dollar and gold, internationally, gold has always been denominated in US dollars.
This is about the international status of the US dollar.
With the strength of the United States, the U.S. dollar was closely linked to the gold reserve in the early years. Due to the stable and high gold content of the U.S. dollar, the world has a high reputation for the U.S. dollar. The recognition makes this single national currency an international settlement currency.
In the global foreign exchange market, the U.S. dollar is the most actively traded currency, so the U.S. dollar has the dual identity of the U.S. national currency and the international settlement currency. It is precisely because of the high international status of the U.S. dollar that the world gold market generally trades at The price is denominated in US dollars, so the depreciation of the US dollar will inevitably lead to an increase in the price of gold.
Since the gold market price is denominated in US dollars, the appreciation of the US dollar will cause the price of gold to fall, and the depreciation of the US dollar will promote the price of gold. It can be seen that the strength of the US dollar will have a very significant impact on the price of gold.
At the same time, the negative correlation between the U.S. dollar and gold also proves that when the U.S. dollar falls, gold rises, and when gold falls, the U.S. dollar tends to rise. Therefore, investors are more accustomed to investing in gold with reference to the U.S. dollar.
Risk reminder: remember to take profit and stop loss when trading, and put risk management first.
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