Gold Mining Case

Why did the gold standard fail? Can it be revived? What changes would you see in the exchange rate movement if the gold standard were revived? Explain your answers.
Gold Standard fails when in 1914World War I started. Now in days is less likely to be revived because of the stock markets and other things that might have better impacts in the economies. Monetary policy would essentially bedetermined by the rate of gold production. Although the gold standard gives long-term price stability, it does in the short term bring high price volatility. It provides fixed international exchangerates between those countries that have adopted it, and thus reduces uncertainty in international trade. The gold standard makes chronic deficit spending by governments more difficult, as it preventsgovernments from inflating away the real value of their debts
The gold standard failed the first time because it was semi-dependant on two freak situations: a) relative peace and prosperity in theglobal environment between 1871 and 1914, and b) a huge increase in gold production and discovery. Theoretically, while the gold standard could be revived, it’s global adoption would be impacted on twoeconomic situations, the first of which is the growth of the emerging markets. As economies grow it would be difficult for a country’s central bank to purchase enough gold to fund the growth of thecurrency due to continued economic expansion. In this case the gold standard would limit economic growth. Second with significant countries in the EU on the verge of bankruptcy, it seems likelythat, even if the EU decided to peg the EURO to gold, it might still postpone the adoption of the gold standard until a more propitious time. This whole scenario is dependant on fiscal responsibility,since in today’s business environment, the better the use of credit, the greater an advantage one company will have over another. The question is, do we expect sovereign governments to behave any...