Contents

  1. The Beginning of the Gold Standard
  2. The End of the Gold Standard
  3. After the Gold Standard
  4. Returned to the Gold Standard

The Beginning of the Gold Standard

Gold has been used because the currency of alternative throughout history as a result of it’s rare, tough to get, malleable, and doesn’t corrode. Its earliest famous use as a minted currency was around 600 B.C.E. in Lydia, in current Turkey.

While gold was minted into coins and used for mercantilism after, the dear metal didn’t become typical till the nineteenth century. The UK used gold as a type as early as 1816, however, it had been not till the decennary that gold became a world Standard for valuing the currency. The US adopted the gold Standard in 1879 when many attempts to use varied exchange ways were unsuccessful.

The Gold Standard Act of 1900 established gold because the solely metal for redeeming folding money within the U.S.4 The act warranted that the govt would redeem any quantity of paper currency for its worth in gold, and it meant that transactions do not have to be finished significant gold bullion or coins as a result of folding money had a warranted worth tied to one thing real.

The End of the Gold Standard

Between 1900 and 1932, the U.S. round-faced many economic challenges and entered war I. Bank runs large numbers of individuals dashing to the bank to withdraw cash were inflicting banks to fail. additionally, seasonal occurrences that needed massive amounts of money, like crop harvests, strained banks’ ability to provide money as a result, very like these days, they didn’t keep enough money to be had to hide multiplied demands.

The FRS system was created in a trial to satisfy the strain for money and stabilize costs by supplying notes to assist banks to issue money once demand was up. Sadly, the Fed’s creation and actions did not have the supposed result. In 1933, the gold Standard was all over as a result it had been unsustainable. The system merely could not sustain consumers’ demand for money.

Additionally, the Fed was restricted in the actions it may take, if it wrote extra money, it debased the dollar; if it down interest rates, gold investors and homeowners would sell their gold overseas and scale back the country’s offer of gold. For these reasons, gold became associate degree quality solely specific entities may hold.

Enacted on a Gregorian calendar month. 30, 1934, the Gold Reserve Act prohibited the personal possession of gold except below license. This act removed gold from circulation and as a peg of value, so a correct gold Standard within the U.S. solely existed from 1879 to 1933.3

After the Gold Standard

In 1944, the Bretton Woods agreement was created by allied nations in Bretton Woods, New Hampshire. This agreement pegged all concerned country’s currencies to the U.S. dollar and pegged the U.S. dollar to the value of gold at $35 an oz.

Currencies became convertible below the Bretton Woods system in 1944, which suggests that one country’s currency may be changed for another’s. The U.S. was purported to maintain gold’s value and its inventory so that it may redeem greenbacks for gold. However, international currency circulation caused too several U.S. greenbacks to be commanded in foreign countries.

If those countries had set to redeem their greenbacks for gold, the U.S. would not have had enough at $35 per ounce to try to do this. This effectively all over what was left of the gold standard; in 1971, President Richard Milhous Nixon proclaimed that greenbacks may not be saved for gold.

Returned to the Gold Standard

There is no method of knowing what would very happen. However, a financial organization cannot implement a financial policy like influencing interest rates or injecting cash into the economy below this method. To boot, it might limit the quantity of money that might be in circulation, and governments would want to be able to redeem currency for gold.

Their square measure solely concerns 244,000 metric heaps of gold discovered, and there’s over $2 trillion in circulation. If the U.S. were to aim to travel back to the gold Standard, it might be got to hold all of the gold ever discovered and peg the dollar at roughly $237 an oz. If you saved $1, you’d receive 1/237th of an oz. of gold at that value. If different countries command gold, the quantity of gold you’d receive if you saved $1 would be even less.