"I doubt any central banker today would support the idea of tying the money supply directly to gold. The reason is that there is essentially a fixed supply of gold in the world. Annual mining output does not have much impact, since the gold that can be mined in any one year represents a small fraction of all the gold which has been mined previously. Unlike, say, oil, gold that is produced is almost never consumed. It just ends up in someone’s jewelry box or coin collection or, most likely, in a bullion vault, where it sits until it is sold to someone who will put it in a similar place."
"Thus, if the supply of money is set as some fraction of the supply of gold, the money supply becomes fixed. The need for money, however, is not fixed; it expands as commerce expands. The need for money also increases when the money’s “velocity,” the rate at which people spend it, slows down. If the money supply is not increased in response to decreases in velocity, the economy contracts sharply."
"Back in the days of the gold standard, recessions were sharp and frequent, and bouts of deflation were common. There were literally shortages of money. The greatest money shortage of all became known as the Great Depression. In 1933, one of President Franklin D. Roosevelt’s first acts in office was to break the tight link between gold and the U.S. money supply."
from The Business Insider
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