March 17, 2009 | Posted in:Gold

The gold standard is a monetary system in which paper notes are exchanged, which are normally freely convertible into fixed quantities of gold bullion. As an example, the U.S. dollar bill once said "one dollar in silver payable to the bearer on demand". This was removed from the note when the United States abandoned the gold standard in favor of a fiat currency.

When other nations are also on the same system, their currencies are fixed in terms of one another's so that gold flows, along with capital flows, may then occur internationally to balance accounts between these nations.

In 1910 the Canadian dollar was officially defined in terms of fine gold instead of the gold sovereign so that it became the exact gold equivalent of the US dollar. When World War I began, Canada, like the United Kingdom, went off the gold standard. In 1929, Canadian banks ceased redeeming notes in gold, ending the adherence to the gold standard.

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