The basics of the gold standard formulated in the 19th century

Many of you might vaguely remember the gold standard from school, which for several decades in the 20th century, was standard in many of the world’s countries. In fact, fiat currencies had been pegged to gold much earlier — even in the ancient past. Many rulers of past civilizations pegged the value of the coins they minted to gold.

Nevertheless, pegging paper money to gold was a much more modern development, dating from the 19th century. Unsurprisingly, it was invented in the largest empire of the 19th century, the ruler of the seas — Great Britain.

The first modern-style gold standard was introduced in 1816, after the Napoleonic wars. The Rothschild clan accumulated tremendous amounts of physical gold while war-ravaged Europe was buried under the weight of debt and inflation.

How does the gold standard work? In short, a state declares that gold is the only «true» money. Of course, paper money circulates, too, but each banknote must be fully backed by gold that is owned by the state bank. Paper money can be freely exchanged for gold coins stored in the reserve.

What did the Rothschilds gain from this? The gold standard system ensured constant demand for physical gold. In order to satisfy this demand, the Rothschilds provided loans in gold and earned high interest fees. As an added bonus, they received the gratitude of state rulers (expressed in very interesting ways deserving of a separate article).

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