Discuss how the gold standard used prior to WWI is different

Discuss how the gold standard used prior to WWI is different from a typical pegged fixed exchange rate regime.

Solution

Before wwI gold exchange standard was used throughout the world. It was first implemented by Britain and later on other countries to implemented the same. Under this system of exchange gold was used as the basis of exchange for example if it costed $2 for 1 pound of gold in USA and £1 in Britain then the exchange rate will be £0.5 /$ or, $2/£.

While under pegged fixed exchange rate regime the currencys rate is fixed against the value of a particular currency or a basket of currencies. In this case the exchange rate is fixed in nature and does not change with the change in market condition.

Another mechanism to determine pegged fixed exchange rate is to fix the currency\' s exchange rate on the value of gold.

But in this case the exchange rate does not change with the change in value of gold.