Gold standard/Tutorials: Difference between revisions
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==The effect of gold stocks upon the money supply== | |||
Under the gold standard the effect of variations in a country's central bank stock of gold upon that country's money supply is governed by the identity: | |||
::::M1 = (M1/BASE) x (BASE/RES) x (RES/GOLD) x PGOLD x QGOLD | |||
where | |||
:M1 = money supply (money in circulation plus retail bank deposits); | |||
:BASE = monetary base (money in circulation plus retail bank reserves); | |||
:RES = international reserves of the central bank (foreign assets plus gold reserves); | |||
:GOLD = gold reserves of the central bank, - PGOLD x QGOLD; | |||
:PGOLD = the price of gold per unit of quantity aat which the central bank is required to buy and sell gold; and, | |||
:QGOLD = the size (quantity) of the central bank's gold reserve; | |||
and | |||
:the ratio M1/BASE - the "money multiplier" is greater than 1 in a fractional reserve banking system | |||
Revision as of 04:24, 17 February 2009
The effect of gold stocks upon the money supply
Under the gold standard the effect of variations in a country's central bank stock of gold upon that country's money supply is governed by the identity:
- M1 = (M1/BASE) x (BASE/RES) x (RES/GOLD) x PGOLD x QGOLD
where
- M1 = money supply (money in circulation plus retail bank deposits);
- BASE = monetary base (money in circulation plus retail bank reserves);
- RES = international reserves of the central bank (foreign assets plus gold reserves);
- GOLD = gold reserves of the central bank, - PGOLD x QGOLD;
- PGOLD = the price of gold per unit of quantity aat which the central bank is required to buy and sell gold; and,
- QGOLD = the size (quantity) of the central bank's gold reserve;
and
- the ratio M1/BASE - the "money multiplier" is greater than 1 in a fractional reserve banking system