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Why did the gold standards fail?

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1. Due to some foreigners keeping their funds for short periods in foreign banks. Hence banks like Bank of England could not afford to loose its gold resources in large quantities at short notice.

2. Scarcity of gold due to indebtedness. After the war I countries became nearly indebted, the only mode of payment was through the gold standard. This meant that a country like USA which had lend to other countries got hold of over 34% of the total world gold. Gold thus became scarce and other countries started looking for alternative modalities for settling their indebtedness.

3. Gold was unable to play the role of an automatic stabilizer in international trade especially after war II when an enormous growth in the indebtedness resulted on the government and local authorities. This resulted in mass of payments fixed by the contracts of over a long period of years. These means that prices no longer move in the directions warranted by gold movements and equilibrium failed to be restored.

Wilfykil answered the question on March 8, 2019 at 10:12

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Why did the gold standards fail?

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