Mekanisme Mata Wang dan Kemeruapan Indikator Ekonomi Dunia: Penilaian Semula ke atas Piawaian Emas

Currency Mechanism and World Economic Volatility Indicator: Reevaluation of Gold Standard

Abstract

The use of currency mechanism has evolved since the use of shell as money, metal coins (e.g. gold and silver coins), paper money backed by gold standard, and fiat money. In the context of modern world, the most important mechanism is the gold standard system, Bretton Woods (paper money backed by gold standard), and fiat money system. It is expected that there is a relationship between the currency mechanism of gold standard and the stabilities in the currency and the economy. The issue here is how far is the economy during a certain period can guarantee economic stability. The research in this paper will assess whether the gold standard currency can guarantee economic stability. Analysis is carried out in order to see if there is a relationship between the volatility of the primary world economic indicators and the currency mechanism regime. The primary economy indicators are inflation, GDP, gold price, and unemployment rate for the duration of more than 100 year. The research methodology used is GARCH-M. The result shows that there is no clear indication of a relationship between currency mechanism and volatility for all the indicators, that there is no evidence that gold standard can guarantee economic indicators stabilities. Both Inflation and unemployment are found to be volatile during the gold standard era and so is the gold value. On the contrary, during the fiat money era, indicators i.e. inflation and unemployment rates are found to be nonvolatile. GDP is found to be volatile during the gold standard era and also fiat money era. These show that neither gold standard system nor currency backed by gold standard would guarantee stability in the economic indicators. We can also conclude that economic stability may be influenced by other factors other than the currency regimes, such as the country’s political stability, war, and real economic growth. The main implication for this research is that coming back to gold standard system or paper money backed by gold standard is not an option to overcome crisis and instability in the economies.