The monetary policy of the whole world is one that is racked with little bits of financial data that when combined, make up a giant system of economic gains and losses. When gold and silver are used as money, the money supply can grow only if the provision of these metals is increased by mining.
The money supply is the month in which the entire worlds economical machine is powered by. Even the ‘new green’ in economics and motivation, still mandates that the money supply is king. The chief driving force of any money supply is the ability to move the money to one place from another. The seem-less method of delivery that needs to be used is referred to as the monetary system. An example of this situation is the ATM machine. The debit/credit card is inserted and the bank gives the money through the little slot. There, the simplest shape of the money supply, done and rather quickly.
The money supply is of high and great importance as each of the various countries of the world require a great system of delivery to receive and give services and goods. A great illustration of a country with a decent money supply is the United States of America. Known as the power house around the world, still.
This rate of increase will speed-up when the gold-rushes occur and the discoveries by pioneers such as Christopher Columbus and Hernando DeSoto, get their eyes on gold. This did cause inflation, as the cost of gold went way down. However, if the cost of gold cannot keep up with the progression of the economy, gold becomes simply more valuable, and prices will drop, causing deflation.
The theory of purchasing power parity (PPP) begins with the assumption that, in equilibrium, a flexible exchange rate reflects movements in relative prices between countries. If UK prices rise 10 percent relative to US prices, (reducing UK competitiveness) to maintain equilibrium in international accounts the Pound Sterling would be expected to depreciate relative to the dollar by 10%.[xxxv] The ‘mint parity’ between the U.S. dollar and sterling was approximately $4.87, based on a U.S. official gold price of $20.67 per ounce and a U.K. official gold price of £ ;4.24 Per ounce. The sterling/dollar exchange rate wouldn’t fluctuate beyond the ‘gold points’ (about three cents above and below the mint parity) which represented the price of shipping and insuring gold, since at any exchange rate outside the gold points it would be feasible to gain an arbitrage profit by converting currency into gold and shipping the gold to the next center.
The case in point was the Great depression. The monetary policy of the United States during the early 1930′s was one that saw gold as the main driving force in the economy of the nation.
Modern day monetary systems are based on fiat money and are no longer related to the value of gold as they once were. The control of the quantity of money in the economy is called monetary policy. Monetary policy is the process whereby a monetary authority such as a central repository or government manages to accomplish certain tasks or goals.
Usually the goal of monetary policy aims to accommodate economic growth in a context of stable prices. For example, it is clearly stated and should try to promote effectively the objectives of stable prices, maximum employment, and moderate long-term interest rates. A failed monetary policy can have significant adverse effects on an economy and the company that depends on it. These include inability to export goods, high, shortages of imported products, and even total monetary collapse and the introduction of a much less efficient barter economy.