Gold Standard
A monetary system that fixed each currency to a set weight of gold, so paper money was redeemable for metal on demand.
For roughly a century, money was a claim on metal. Under the gold standard a currency was pegged to a fixed weight of gold, and a banknote was essentially an IOU: present it at a bank and you could walk out with the metal on demand. Because every major currency was tied to the same substance, exchange rates barely moved, and a pound, a franc, and a dollar were just different-sized slices of the same yellow bar. That arrangement organized the world economy from the 1870s until it finally died in 1971.
The age of discipline
The 'classical' gold standard ran from roughly the 1870s to 1914, and its unofficial central bank was the Bank of England. London was the hub of global finance, sterling was as good as gold, and countries from Germany to Japan pegged in to join the club. The payoff was extraordinary stability. Prices barely trended over decades, exchange rates were fixed, and capital and goods flowed across borders with a freedom the twentieth century would not see again. This was the monetary skeleton of Pax Britannica: predictable money that let a merchant in Buenos Aires and a banker in London settle accounts without fear that a currency would melt overnight.
The iron cage
The discipline had teeth. A government on gold could not simply print money, because every note had to be backed by metal in the vault. That made inflation nearly impossible, which lenders loved. But it also meant a country could not inflate away its debts or expand the money supply to fight a downturn. When gold flowed out, the rules demanded the opposite of what a suffering economy needed: higher interest rates, falling wages, and deflation until the pain restored balance. In good times the gold standard felt like sound money. In a slump it felt like a straitjacket that traded mass unemployment for the sanctity of the peg.
The long unwinding
The First World War broke the system; governments needed to print, and gold convertibility was suspended to pay for the slaughter. The interwar attempt to rebuild it turned catastrophic. Clinging to gold forced country after country into deflation, and economists now blame that rigidity for deepening the Great Depression. The nations that abandoned gold first, Britain in September 1931, recovered first; those that clung on, like the United States until 1933 and France into 1936, suffered longest. After 1944 a watered-down version survived at Bretton Woods, where only the dollar stayed convertible to gold. That last thread snapped on August 15, 1971, when Richard Nixon closed the gold window. Since then every major currency has been fiat: money backed by nothing but the government that issues it and the confidence of the people who use it.
The claim check is gone. The dollar in your pocket promises no metal, only that tomorrow it will still buy roughly what it buys today, a promise now kept by central bankers rather than by gold in a vault.