The Golden Era

From the 1870s until World War I, the United Kingdom served as the leading financial and banking center of the world, while gold ruled as the monetary standard of all the major trading countries. Each country pegged its currency to gold at a constant and unchanging rate. The international gold standard system ushered in a period of unprecedented stability and prosperity - at least for the middle and upper classes in the industrial countries.

Gold and Stability

credits

The gold standard provided monetary discipline. Because governments were required to convert domestic currency into gold on request, the amount of currency they could print was limited by the amount of gold in their reserves.

Exchange rates never varied in the classical gold system. This made exchanging money much easier for travelers. American Express even printed the exact amount of foreign currency exchange right on its traveler's cheques.

credits

Industrial Revolution

Technological advances in the nineteenth century produced more goods and created more efficient ways of transporting them across national borders. Governments increasingly recognized the need for easy and convenient currency convertibility. The United Kingdom, economic and financial leader of the world, had based its currency on gold since the early nineteenth century. In the 1870s, Germany and other major trading countries followed its lead and converted to the gold standard.