Probably, gold too had a bit of drift, and did not quite attain this perfect ideal. But, it was minor enough that it didn’t matter very much. Certainly, the result was much closer to this ideal of Stable Money than any floating fiat currency, whose values go up and down from first principles.
All major countries linked their currencies to gold, so that exchange rates were essentially fixed and unchanging. Currencies didn’t go up and down relative to each other.
Some governments’ commitment to reliable currency value — their link to gold — was more trustworthy than others. During the 1950s and 1960s, the U.S. dollar remained linked to gold at $35/oz., and the German mark and Japanese yen were also highly reliable. Britain and France, however, had a few devaluations. Brazil had hyperinflation.
Thus, we could say that the U.S. dollar was “stronger” — more reliable, more stable — than the French franc, or the Brazilian cruzeiro.
Today, we live in an environment of funhouse mirrors. If we choose to ignore gold as a measure of Stable Value, and do not replace it with something else to fill that role, everything starts to become rather confusing. With all currencies going up and down all the time, it is hard to tell if a change in currency exchange rates is due to the dollar going up or the euro going down. No wonder Greg Mankiw is so non-committal. If the dollar rises vs. the euro, and the euro falls vs. the dollar, which is the same thing, should we presume that it is the euro falling in value while the dollar is unchanged? In this case, to maintain a “strong dollar” — that is, a stable dollar — might mean allowing the euro to fall without following it lower. Or, should we presume that the euro is unchanged, and the dollar’s value is rising? In this case, we might want to avoid an unstable “rising dollar” by bringing dollar/euro exchange rates back into line.
Or, it could be some combination of the two, both the dollar rising and the euro falling. Maybe both the euro and dollar are falling, but the euro is falling a little bit more; or maybe both are rising, but the euro is rising a little less. If you had a room of a hundred economists, you would get two hundred answers: “on the one hand … but on the other hand …” What is a “strong dollar” in this case? What is a stable dollar?
This is one reason why our world monetary situation is a big mess, and has been a big mess since we left gold in 1971. Central bankers and academics are always swearing up and down that they are oh-so-much-better than the gold standard before 1971. Unfortunately, there is not a shred of evidence, over the last 46 years, that this is true.
A “strong” currency is one that is reliably stable in value. To achieve this, you have a basic choice: the gold standard, or the PhD standard. One has always worked. One has never worked. Try to figure out which one is best.