Original sentence: A country in deficit would have depleted gold reserves and would therefore have to reduce its money supply.A country's monetary system is said to be on the gold standard when  money is convertible on demand into gold.Banknotes were issued fractionally backed by gold (i.In classical economics imbalances in international trade were rectified automatically by the gold standard.It was reintroduced in 1925 but finally abandoned in 1931.Most financially important countries were on the gold standard from 1900 until its suspension during World War I because of the problems of transporting gold.Rates of exchange between countries were fixed by their currency values in gold.The resulting fall in demand would reduce imports and the lowering of prices would boost exports; thus the deficit would be rectified.gold reserves were a fixed proportion of the value of the notes in circulation)
Edited sentence: A country's monetary system is said to be on the gold standard when paper currency is backed by gold.In fact, governments abandoned the gold standard because it worked precisely as it was supposed to: it prevented governments and their central banks from surreptitiously diverting wealth from its rightful owners to themselves.It is common to speak of the "collapse" of the gold standard, with the implication that the gold standard did not work.The gold standard, as with any specie money, is a currency mechanism in which the amount of circulating currency is not based on government whim, but on the production of intrinsic value in the economy.The primary effect of a gold standard is to limit inflation and deflation, since it prevents unlimited government deficit spending