United States Dollar and Gold Standard

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Describe the mechanism, which would take place if the Bank of England decides to increase its money supply by purchasing domestic assets under the GOLD STANDARD.

The gold standard has three distinct monetary systems in which the standard economic unit of account is a fixed weight of gold. The gold specie standard is a system, which a monetary unit is associated with circulating gold coins, or with the unit of value circulating gold coin in conjunction with lesser coinage made from a lesser valuable metal. Similarly, the gold exchange standard involves circulation of only coins made of silver or other metals and finally, the gold bullion standard is a system in which gold coins do not circulate, but authorities have agreed to sell gold
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The Bank of England could purchase pounds by selling dollars in order to shift the demand curve for pounds and the Fed could shift the demand curve by buying the pounds. If the British choose to purchase more of U.S. goods and services, the supply curve for pounds increases, and the equilibrium exchange rate for the pound (in terms of dollars) falls to, say, $3. Under the terms of the Bretton Woods Agreement, Britain and the United States would be required to intervene in the market to bring the exchange rate back to the rate fixed in the agreement, $4. The fixed exchange rate systems offer the advantage of predictable currency values—when they are working. In order for the fixed exchange rates to work, the countries participating in them must maintain domestic economic conditions that will keep equilibrium currency values close to the fixed rates.
If adjustment were made by the British central bank, Bank of England, it would have to purchase pounds and would do so by exchanging dollars it had previously acquired in other transactions for pounds. As it sold dollars, it would take in checks written in pounds. When a central bank sells an asset, the checks that come into the central bank reduce the money supply and bank reserves in that country and holders of pound deposits will attempt to sell them for foreign deposits. The sale of dollars by the Bank of England would reduce the
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