Gold standard
Definition
The gold standard was a monetary system where the value of a country's currency was directly linked to a fixed amount of gold. It meant that paper money could be exchanged for gold at a predetermined rate.
Analogy
Imagine you have a gift card that can only be used to buy one specific item, like a video game. The gold standard is similar because it restricts the value of money to be tied to a specific commodity, just like the gift card can only be used for one thing.
Related terms
Fiat money: Currency that has value because the government declares it as legal tender.
Inflation: A general increase in prices and fall in the purchasing power of money.
Central bank: A financial institution responsible for managing a country's money supply and controlling interest rates.
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