The biggest advantage of the international gold system is stability, but this external balance comes at the expense of internal balance.

(1) Gold serves as an international currency and is the foundation of the international monetary system. The international gold standard system of this period was based on the domestic gold coinage standard implemented in all major capitalist countries. Its typical features were that gold coins could be freely minted and exchanged, and gold could be freely imported and exported. Because gold coins can be freely minted, the face value of gold coins and the gold content can always remain consistent, and the number of gold coins can spontaneously meet the needs of circulation; because gold coins can be freely exchanged, various metal auxiliary coins and bank notes can stably represent a certain amount of money. A certain amount of gold is circulated to maintain the stability of the currency value; because gold can be freely imported and exported, the stability of the local currency exchange rate can be maintained. Therefore, it is generally believed that the gold standard is a stable monetary system.

Although the basis of the international gold standard system is gold, the pound actually performed various functions of the international currency instead of gold at that time. Holders of pounds can redeem gold at the Bank of England at any time, and there are many conveniences and advantages in using pounds over gold. At that time, Britain relied on its status as an economic power as the "world's factory" and as a political power under colonial rule as "the country on which the sun never sets", as well as its advantages in trade, shipping, marine insurance, and financial services to make the pound a currency widely used around the world. Currency; made London the financial center of the world. In international trade at that time, most commodities were priced in pounds, 90% of international settlements were in pounds, and the international reserves of many countries' central banks were pounds instead of gold. Opening a pound account in London can earn interest, while storing gold not only has no interest, but also has to pay storage fees. Holding pounds is more convenient and profitable than holding gold, so some Western economists refer to the Second World War as The previous international gold standard was called the pound standard.

(2) The exchange rates between currencies of various countries are determined by their respective gold content ratios. Because the free exchange of gold coins, free minting and free import and export of gold under the gold coinage standard will ensure that the exchange rate fluctuations in the foreign exchange market are maintained within the gold delivery point determined by gold parity and gold transportation costs. In fact, the exchange rate parity of the currencies of major countries such as the United Kingdom, the United States, France, and Germany has remained unchanged for 35 years from 1880 to 1914, and has never appreciated or depreciated. Therefore, the international gold standard is a strict fixed exchange rate system, which is an important feature.

(3) The international gold standard has a mechanism to automatically adjust the balance of payments. That is the "price-coin flow mechanism first proposed by the British economist Hume in 1752. In order for the international gold standard to play a role, especially the role of automatic adjustment, countries must abide by three principles: First, keep their national currencies consistent with A certain amount of gold is fixed and can be exchanged for gold at any time; secondly, gold can be freely exported and imported, and financial authorities in various countries should buy and sell gold and foreign exchange at any time according to the official price without restrictions; thirdly, the central bank or other monetary institutions must have the right to issue banknotes. A certain gold reserve. In this way, the domestic money supply will increase due to the inflow of gold and decrease due to the outflow of gold.

Later, the neoclassical school made a little addition to the automatic adjustment process of the gold standard, which emphasized the international. The role of short-term capital flows in the balance of payments. International short-term capital flows will accelerate the process of balancing the balance of payments. First, when a country's balance of payments deficit causes the exchange rate to fall, foreign exchange speculators know that under the gold standard system, the exchange rate will decline. It can only fluctuate between gold delivery points, and the outflow of gold will eventually restore the balance of payments and the exchange rate. The decline in the exchange rate is only a temporary phenomenon and will rebound soon. Therefore, a large amount of foreign exchange speculative short-term funds will flow to the country. , when the balance of payments deficit causes the exchange rate to fall, import and export traders also predict that the exchange rate will rise soon, so domestic importers will try to postpone the purchase of foreign exchange for external payments, while foreign exporters tend to pay in advance as much as possible, which also causes short-term Inflow of funds. Thirdly, after the international balance of payments deficit causes the outflow of gold, domestic currency credit shrinks, so financial market interest rates rise, and a large amount of short-term arbitrage funds will flow to the country. In this way, the inflow of short-term funds from all aspects will accelerate the recovery of the balance of payments of the deficit country. Balance. According to the theory of the neoclassical school: a country with a trade surplus will inevitably experience an inflow of gold, an increase in domestic money supply, and an increase in income and price levels. As a result, exports will decrease and imports will increase. At the same time, financial market interest rates will decrease and capital will flow out. On the contrary, trade will occur. A deficit country will inevitably experience an outflow of gold, a decrease in domestic money supply, a decrease in income and price levels, an increase in exports, and a decrease in imports. At the same time, interest rates in the financial market will increase, and foreign funds will flow in. In short, Hume's "price-coin flow mechanism" is only based on the The quantity theory of money serves as the basis, while the neoclassical school sees the impact of capital flows on the adjustment of the international balance of payments, which is a step forward than Hume.