Pegging currencies to gold eliminated the need for interpersonal trust in international trade.
Evidence
The gold standard solved this problem of trust by eliminating the need for it. The solution was to tie the notional value of different national currencies to gold at a fixed rate, gold being a conventional store of value that both is internationally exchangeable and cannot (easily) be altered by governments. X units of currency Y therefore could be exchanged everywhere for Z units of gold. And if all countries “pegged” their currencies to gold in this way, it facilitated trade by solving the fiat money/trust problem. — Mark Blyth, Austerity, 487
Categorization
- DEFINE: Explains the mechanism by which gold’s convertibility substituted for fiat trust in cross-border commerce.
- XREF: Connects to Milgrom’s law-merchant material: both are institutional fixes for the same cross-border trust deficit. — connects to: The introduction of coinage enabled new forms of trade and trust in economic systems. — Neil MacGregor, A History of the World in 100 Objects, 426; Trust cannot be eliminated from ongoing economic relations.; Returning to gold required deliberate deflation in post-WWI Europe. — Mark Blyth, Austerity: The History of a Dangerous…, 499 (+1 more)
Broader Connections
- The introduction of coinage enabled new forms of trade and trust in economic systems.
#expands(0.80) — Neil MacGregor, A History of the World in 100 Objects, 426 - Trust cannot be eliminated from ongoing economic relations.
#qualifies(0.80) - Returning to gold required deliberate deflation in post-WWI Europe.
#qualifies(0.75) — Mark Blyth, Austerity, 499 - Gold standard currencies had fixed parities and central banks limited issuance to gold reserves
#expands(0.75) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 64