# [[Gold]] Standard ### Clarification on the role of the discount rate from the [[World Gold Council]] https://www.gold.org/about-gold/history-of-gold/the-gold-standard This was the underlying principle of how the Gold Standard operated, although in practice it was more complex. The adjustment process could be accelerated by central bank operations. The main tool was the discount rate (the rate at which the central bank would lend money to commercial banks or financial institutions) which would in turn influence market interest rates. ==A rise in interest rates would speed up the adjustment process through two channels. First, it would make borrowing more expensive, reducing investment spending and domestic demand, which in turn would put downward pressure on domestic prices, enhancing competitiveness and stimulating exports. Second, higher interest rates would attract money from abroad, improving the capital account of the balance of payments. A fall in interest rates would have the opposite effect.== The central bank could also directly affect the amount of money in circulation by buying or selling domestic assets though this required deep financial markets and so was only done to a significant extent in the UK and, latterly, in Germany. ### Deviation from the 'rules' https://www.gold.org/about-gold/history-of-gold/the-gold-standard Nevertheless, provided such violations of the ‘rules’ were limited, provided deviations from the official parity were minor and, above all, provided any suspension was for a clear purpose and strictly temporary, the credibility of the system was not put in doubt. Bordo[2] argues that the Gold Standard was above all a ‘commitment’ system which effectively ensured that policy makers were kept honest and maintained a commitment to price stability.