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Define The Main Advantages And Disadvantages Claimed For Gold Exchange Standard?

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Muhammad Abdullah786 Profile
The main advantages claimed for this system are:It gives all the advantages of full gold standard without involving the use of gold.When the currency of the country is tied up with a strong gold currency, the exchange rate stability is secured and international payments are facilitated.

The system is economical as cost incurred in packing, handling or shipping of gold is saved.
There is no loss from abrasion as the domestic currency consists of non gold metallic coins and paper. Hilton young commission severely criticized the working of gold exchange standard on the following grounds.

The disadvantages of the system are as follow.
It is very unintelligible, complicated and abstract system to the common man.It is not an automatic system like the full gold standard.It lacks elasticity. The contraction of currency is specially a difficult affair.The currency of gold exchange standard country becomes subservient to that of the gold country with which it is linked. If the currency of one country is subjected to misfortunes, the currency of the other country is immediately affected.
it creates unnecessary duplication of reserves. In India, for instance balance of the government was kept in gold standard reserves. Then the Paper currency reserve and the government of India's will balance.

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