Monetary system in which the standard unit of currency is a fixed quantity of gold or is freely convertible into gold at a fixed price.
The gold standard was first adopted in Britain in 1821. Germany, France, and the U.S. instituted it in the 1870s, prompted by North American gold strikes that increased the supply of gold. The gold standard ended with the outbreak of World War I in 1914; it was reestablished in 1928, but because of the relative scarcity of gold, most nations adopted a gold-exchange standard, supplementing their gold reserves with currencies (U.S. dollars and British pounds) convertible into gold at a stable rate of exchange. Though the gold-exchange standard collapsed during the Great Depression, the U.S. set a minimum dollar price for gold, an action that allowed for the restoration of an international gold standard after World War II. In 1971 dwindling gold reserves and an unfavourable balance of payments led the U.S. to suspend the free convertibility of dollars into gold, and the gold standard was abandoned. See also bimetallism ; exchange rate ; silver standard .