Gold standard

Gold standard

Overview
The gold standard is a monetary system in which the standard economic
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 unit of account
Unit of account
A unit of account is a standard monetary unit of measurement of value/cost of goods, services, or assets. It is one of three well-known functions of money. It lends meaning to profits, losses, liability, or assets....

 is a fixed mass of gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...

. There are distinct kinds of gold standard. First, the gold specie standard is a system in which the monetary unit is associated with circulating gold coins, or with the unit of value defined in terms of one particular circulating gold coin in conjunction with subsidiary coinage made from a lesser valuable metal.

Similarly, the gold exchange standard typically involves the circulation of only coins made of silver or other metals, but where the authorities guarantee a fixed exchange rate with another country that is on the gold standard.
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Encyclopedia
The gold standard is a monetary system in which the standard economic
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 unit of account
Unit of account
A unit of account is a standard monetary unit of measurement of value/cost of goods, services, or assets. It is one of three well-known functions of money. It lends meaning to profits, losses, liability, or assets....

 is a fixed mass of gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...

. There are distinct kinds of gold standard. First, the gold specie standard is a system in which the monetary unit is associated with circulating gold coins, or with the unit of value defined in terms of one particular circulating gold coin in conjunction with subsidiary coinage made from a lesser valuable metal.

Similarly, the gold exchange standard typically involves the circulation of only coins made of silver or other metals, but where the authorities guarantee a fixed exchange rate with another country that is on the gold standard. This creates a de facto
De facto
De facto is a Latin expression that means "concerning fact." In law, it often means "in practice but not necessarily ordained by law" or "in practice or actuality, but not officially established." It is commonly used in contrast to de jure when referring to matters of law, governance, or...

gold standard, in that the value of the silver coins has a fixed external value in terms of gold that is independent of the inherent silver value. Finally, the gold bullion standard is a system in which gold coins do not circulate, but in which the authorities have agreed to sell gold bullion on demand at a fixed price in exchange for the circulating currency.

Beginnings



The gold specie standard was not designed, but rather arose out of a general acceptance that gold was useful as a universal currency. When commodities compete for the role of money, the one that over time loses the least value, takes on the role. The use of gold as money dates back thousands of years and the first known gold coins were minted in the kingdom of Lydia
Lydia
Lydia was an Iron Age kingdom of western Asia Minor located generally east of ancient Ionia in the modern Turkish provinces of Manisa and inland İzmir. Its population spoke an Anatolian language known as Lydian....

 in Asia Minor
Asia Minor
Asia Minor is a geographical location at the westernmost protrusion of Asia, also called Anatolia, and corresponds to the western two thirds of the Asian part of Turkey...

 around 610 BC. The first coins minted in China are thought to date around 600 BC. During the Middle Ages
Middle Ages
The Middle Ages is a periodization of European history from the 5th century to the 15th century. The Middle Ages follows the fall of the Western Roman Empire in 476 and precedes the Early Modern Era. It is the middle period of a three-period division of Western history: Classic, Medieval and Modern...

, the Byzantine
Byzantine Empire
The Byzantine Empire was the Eastern Roman Empire during the periods of Late Antiquity and the Middle Ages, centred on the capital of Constantinople. Known simply as the Roman Empire or Romania to its inhabitants and neighbours, the Empire was the direct continuation of the Ancient Roman State...

 gold Solidus
Solidus (coin)
The solidus was originally a gold coin issued by the Romans, and a weight measure for gold more generally, corresponding to 4.5 grams.-Roman and Byzantine coinage:...

, commonly known as the Bezant
Bezant
Bezant is a medieval term for a gold coin from the Byzantine Empire, which term is derived from the Greek name Βυζάντιον for the relatively minor city which in the 4th c. became the capital of the Eastern Roman Empire, renamed Constantinople by the Roman Emperor Constantine the Great...

, circulated throughout Europe and the Mediterranean. But as the Byzantine Empire's economic influence declined, the European world tended to see silver, rather than gold, as the currency of choice, leading to the development of a silver standard
Silver standard
The silver standard is a monetary system in which the standard economic unit of account is a fixed weight of silver. The silver specie standard was widespread from the fall of the Byzantine Empire until the 19th century...

. Silver pennies
Penny
A penny is a coin or a type of currency used in several English-speaking countries. It is often the smallest denomination within a currency system.-Etymology:...

, based on the Roman Denarius
Denarius
In the Roman currency system, the denarius was a small silver coin first minted in 211 BC. It was the most common coin produced for circulation but was slowly debased until its replacement by the antoninianus...

, became the staple coin of Britain
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

 around the time of King Offa, circa AD 796, and similar coins, including Italian denari, French deniers
French denier
The denier was a Frankish coin created by Charlemagne in the Early Middle Ages. It was introduced together with an accounting system in which twelve deniers equaled one sou and twenty sous equalled one livre...

, and Spanish dineros
Spanish dinero
The dinero was the currency of the Christian states of Spain from the 11th century. It was copied from the French denier and served in turn as the model for the Portuguese dinheiro....

circulated throughout Europe. Following the Spanish discovery of great silver deposits at Potosí
Potosí
Potosí is a city and the capital of the department of Potosí in Bolivia. It is one of the highest cities in the world by elevation at a nominal . and it was the location of the Spanish colonial mint, now the National Mint of Bolivia...

 and in Mexico
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...

 during the 16th century, international trade came to depend on coins such as the Spanish dollar
Spanish dollar
The Spanish dollar is a silver coin, of approximately 38 mm diameter, worth eight reales, that was minted in the Spanish Empire after a Spanish currency reform in 1497. Its purpose was to correspond to the German thaler...

, Maria Theresa thaler
Maria Theresa thaler
The Maria Theresa thaler is a silver bullion-coin that has been used in world trade continuously. Maria Theresa Thalers were first minted in 1741, using the then Reichsthaler standard of 9 thalers to the Vienna mark. In 1750 the thaler was debased to 10 thalers to the Vienna Mark...

, and, in the 1870s, the United States Trade dollar
Trade Dollar (United States coin)
The trade dollar was a United States dollar coin minted to compete with other large silver coins that were already popular in East Asia. The idea first came about in the 1860s, when the price of silver began to decline due to increased mining efforts in the western United States...

.

In modern times the British West Indies
British West Indies
The British West Indies was a term used to describe the islands in and around the Caribbean that were part of the British Empire The term was sometimes used to include British Honduras and British Guiana, even though these territories are not geographically part of the Caribbean...

 was one of the first regions to adopt a gold specie standard. Following Queen Anne's proclamation of 1704, the British West Indies gold standard was a de facto
De facto
De facto is a Latin expression that means "concerning fact." In law, it often means "in practice but not necessarily ordained by law" or "in practice or actuality, but not officially established." It is commonly used in contrast to de jure when referring to matters of law, governance, or...

gold standard based on the Spanish gold doubloon
Doubloon
The doubloon , was a two-escudo or 32-reales gold coin, weighing 6.77 grams . Doubloons were minted in Spain, Mexico, Peru, and Nueva Granada...

 coin. In the year 1717, master of the Royal Mint
Royal Mint
The Royal Mint is the body permitted to manufacture, or mint, coins in the United Kingdom. The Mint originated over 1,100 years ago, but since 2009 it operates as Royal Mint Ltd, a company which has an exclusive contract with HM Treasury to supply all coinage for the UK...

 Sir Isaac Newton
Isaac Newton
Sir Isaac Newton PRS was an English physicist, mathematician, astronomer, natural philosopher, alchemist, and theologian, who has been "considered by many to be the greatest and most influential scientist who ever lived."...

 established a new mint ratio between silver and gold that had the effect of driving silver out of circulation and putting Britain on a gold standard. However, only in 1821, following the introduction of the gold sovereign coin by the new Royal Mint at Tower Hill
Tower Hill
Tower Hill is an elevated spot northwest of the Tower of London, just outside the limits of the City of London, in the London Borough of Tower Hamlets. Formerly it was part of the Tower Liberty under the direct administrative control of Tower...

 in the year 1816, was the United Kingdom formally put on a gold specie standard, the first of the great industrial powers. Soon to follow was Canada in 1853, Newfoundland
History of Newfoundland and Labrador
The History of Newfoundland and Labrador is the story of the peoples who have lived in what is now the Canadian province of Newfoundland and Labrador....

 in 1865, and the USA and Germany de jure
De jure
De jure is an expression that means "concerning law", as contrasted with de facto, which means "concerning fact".De jure = 'Legally', De facto = 'In fact'....

in 1873. The USA used the Eagle
Eagle (United States coin)
The eagle is a base-unit of denomination issued only for gold coinage by the United States Mint. It has been obsolete as a circulating denomination since 1933. The eagle was the largest of the four main decimal base-units of denomination used for circulating coinage in the United States prior to...

 as their unit, and Germany introduced the new gold mark, while Canada adopted a dual system based on both the American Gold Eagle and the British Gold Sovereign.

Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...

 and New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...

 adopted the British gold standard, as did the British West Indies, while Newfoundland was the only British Empire territory to introduce its own gold coin as a standard. Royal Mint branches were established in Sydney
Sydney
Sydney is the most populous city in Australia and the state capital of New South Wales. Sydney is located on Australia's south-east coast of the Tasman Sea. As of June 2010, the greater metropolitan area had an approximate population of 4.6 million people...

, New South Wales
New South Wales
New South Wales is a state of :Australia, located in the east of the country. It is bordered by Queensland, Victoria and South Australia to the north, south and west respectively. To the east, the state is bordered by the Tasman Sea, which forms part of the Pacific Ocean. New South Wales...

, Melbourne
Melbourne
Melbourne is the capital and most populous city in the state of Victoria, and the second most populous city in Australia. The Melbourne City Centre is the hub of the greater metropolitan area and the Census statistical division—of which "Melbourne" is the common name. As of June 2009, the greater...

, Victoria
Victoria (Australia)
Victoria is the second most populous state in Australia. Geographically the smallest mainland state, Victoria is bordered by New South Wales, South Australia, and Tasmania on Boundary Islet to the north, west and south respectively....

, and Perth
Perth, Western Australia
Perth is the capital and largest city of the Australian state of Western Australia and the fourth most populous city in Australia. The Perth metropolitan area has an estimated population of almost 1,700,000....

, Western Australia
Western Australia
Western Australia is a state of Australia, occupying the entire western third of the Australian continent. It is bounded by the Indian Ocean to the north and west, the Great Australian Bight and Indian Ocean to the south, the Northern Territory to the north-east and South Australia to the south-east...

 for the purpose of minting gold sovereigns from Australia's rich gold deposits.

The crisis of silver currency and bank notes (1750–1870)


In the late 18th century, wars and trade with China, which sold to Europe but had little use for European goods, drained silver from the economies of Western Europe and the United States. Coins were struck in smaller and smaller numbers, and there was a proliferation of bank and stock notes used as money.

England


In the 1790s, England, suffering a massive shortage of silver coinage, ceased to mint larger silver coins and issued "token" silver coins and overstruck foreign coins. With the end of the Napoleonic Wars, England began a massive recoinage programme
Great Recoinage of 1816
The Great Recoinage of 1816 was an attempt by the British Government to re-stabilise the currency of Great Britain following economic difficulties precipitated by the French Revolutionary Wars and the Napoleonic Wars.-History:...

 that created standard gold sovereigns and circulating crowns and half-crowns, and eventually copper farthings in 1821. The recoinage of silver in England after a long drought produced a burst of coins: England struck nearly 40 million shillings between 1816 and 1820, 17 million half crowns and 1.3 million silver crowns. The 1819 Act for the Resumption of Cash Payments set 1823 as the date for resumption of convertibility, reached instead by 1821. Throughout the 1820s, small notes were issued by regional banks, which were finally restricted in 1826, while the Bank of England was allowed to set up regional branches. In 1833, however, the Bank of England notes were made legal tender
Legal tender
Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency is a common form of legal tender in many countries....

, and redemption by other banks was discouraged. In 1844 the Bank Charter Act established that Bank of England Notes, fully backed by gold, were the legal standard. According to the strict interpretation of the gold standard, this 1844 act marks the establishment of a full gold standard for British money.

US


The US adopted a silver standard based on the Spanish milled dollar in 1785. This was codified in the 1792 Mint and Coinage Act, and by the Federal Government's use of the "Bank of the United States" to hold its reserves, as well as establishing a fixed ratio of gold to the US dollar. This was, in effect, a derivative silver standard, since the bank was not required to keep silver to back all of its currency. This began a long series of attempts for America to create a bi-metallic standard for the US Dollar, which would continue until the 1920s. Gold and silver coins were legal tender, including the Spanish real, a silver coin struck in the Western Hemisphere. Because of the huge debt taken on by the US Federal Government to finance the Revolutionary War, silver coins struck by the government left circulation, and in 1806 President Jefferson suspended the minting of silver coins.
The US Treasury was put on a strict hard-money standard, doing business only in gold or silver coin as part of the Independent Treasury Act of 1848, which legally separated the accounts of the Federal Government from the banking system. However the fixed rate of gold to silver overvalued silver in relation to the demand for gold to trade or borrow from England. The drain of gold in favor of silver led to the search for gold, including the California Gold Rush of 1849. Following Gresham's law
Gresham's Law
Gresham's law is an economic principle that states: "When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation." It is commonly...

, silver poured into the US, which traded with other silver nations, and gold moved out. In 1853, the US reduced the silver weight of coins, to keep them in circulation, and in 1857 removed legal tender status from foreign coinage.

In 1857 the final crisis of the free banking era of international finance began, as American banks suspended payment in silver, rippling through the very young international financial system of central banks. In the United States this collapse was a contributory factor in the American Civil War
American Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...

 (1861–1865), and in 1861 the US government suspended payment in gold and silver, effectively ending the attempts to form a silver standard basis for the dollar.

International


Through the 1860–1871 period, various attempts to resurrect bi-metallic standards were made, including one based on the gold and silver franc; however, with the rapid influx of silver from new deposits, the expectation of scarcity of silver ended.

The interaction between central banking and currency basis formed the primary source of monetary instability during this period. The combination that produced economic stability was a restriction of supply of new notes, a government monopoly on the issuance of notes directly and, indirectly, a central bank and a single unit of value. Attempts to avoid these conditions produced periodic monetary crises: as notes devalued; or silver ceased to circulate as a store of value; or there was a depression as governments, demanding specie as payment, drained the circulating medium out of the economy. At the same time, there was a dramatically expanded need for credit, and large banks were being chartered in various states, including, by 1872, Japan. The need for a solid basis in monetary affairs would produce a rapid acceptance of the gold standard in the period that followed.

Japan


By way of example, and following Germany's decision after the Franco-Prussian War
Franco-Prussian War
The Franco-Prussian War or Franco-German War, often referred to in France as the 1870 War was a conflict between the Second French Empire and the Kingdom of Prussia. Prussia was aided by the North German Confederation, of which it was a member, and the South German states of Baden, Württemberg and...

 (1870-1871) to extract reparations to facilitate a move to the gold standard, Japan gained the needed reserves after the Sino-Japanese War of 1894–1895. Whether the gold standard provided a government sufficient bona fides when it sought to borrow abroad is debated. For Japan, moving to gold was considered vital to gain access to Western capital markets.

The gold exchange standard (1870–1914)



Towards the end of the 19th century, some of the remaining silver standard countries began to peg their silver coin units to the gold standards of the United Kingdom or the USA. In 1898, British India pegged the silver rupee
Rupee
The rupee is the common name for the monetary unit of account in India, Sri Lanka, Nepal, Pakistan, Mauritius, Seychelles, Maldives, and formerly in Burma, and Afghanistan. Historically, the first currency called "rupee" was introduced in the 16th century...

 to the pound sterling at a fixed rate of 1s 4d, while in 1906, the Straits Settlements
Straits Settlements
The Straits Settlements were a group of British territories located in Southeast Asia.Originally established in 1826 as part of the territories controlled by the British East India Company, the Straits Settlements came under direct British control as a crown colony on 1 April 1867...

 adopted a gold exchange standard against the pound sterling with the silver Straits dollar being fixed at 2s 4d.

At the turn of the century, the Philippines pegged the silver Peso/dollar to the US dollar at 50 cents. A similar pegging at 50 cents occurred at around the same time with the silver Peso of Mexico and the silver Yen of Japan. When Siam adopted a gold exchange standard in 1908, this left only China and Hong Kong on the silver standard.

Adopting the gold standard many European nations changed the name of their currency from Rixdaler (Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....

 and Danemark) or Gulden
Austro-Hungarian gulden
The Gulden or forint was the currency of the Austrian Empire and later the Austro-Hungarian Empire between 1754 and 1892 when it was replaced by the Krone/korona as part of the introduction of the gold standard. In Austria, the Gulden was initially divided into 60 Kreuzer, and in Hungary, the...

 (Austria-Hungary
Austria-Hungary
Austria-Hungary , more formally known as the Kingdoms and Lands Represented in the Imperial Council and the Lands of the Holy Hungarian Crown of Saint Stephen, was a constitutional monarchic union between the crowns of the Austrian Empire and the Kingdom of Hungary in...

) to Crown, since the former ones were traditionally associated with silver coins and the latter with gold coins.

Impact of World War I (1914–25)


Governments faced with the need to fund high levels of expenditure, but with limited sources of tax revenue, suspended convertibility of currency into gold on a number of occasions in the 19th century. The British government suspended convertibility (that is to say, it went off the gold standard) during the Napoleonic wars
Napoleonic Wars
The Napoleonic Wars were a series of wars declared against Napoleon's French Empire by opposing coalitions that ran from 1803 to 1815. As a continuation of the wars sparked by the French Revolution of 1789, they revolutionised European armies and played out on an unprecedented scale, mainly due to...

 and the US government during the US Civil War. In both cases, convertibility was resumed after the war. The real test, however, came in the form of World War I, a test "it failed utterly" according to economist Richard Lipsey
Richard Lipsey
Richard George Lipsey, OC, FRSC is a Canadian academic and economist. He is best known for his work on the economics of the second-best, a theory of constrained optimization by government of the tax system, which he co-authored with Kelvin Lancaster, a mathematical economist of high...

.

In order to finance the costs of war, most belligerent countries went off the gold standard during the war, and suffered significant inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

. Because inflation levels varied between states, when they returned to the standard after the war at price determined by themselves (some, for example, chose to enter at pre-war prices), some countries' goods were undervalued and some overvalued. Ultimately, the system as it stood could not deal quickly enough with the large deficits and surpluses created in the balance of payments
Balance of payments
Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world.These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers...

; this has previously been attributed to increasing rigidity of wages (particularly in terms of wage cuts) brought about by the advent of unionized labor
Trade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...

, but is now more likely to be thought of as an inherent fault with the system which came to light under the pressures of war and rapid technological change. In any case, prices had not reached equilibrium by the time of the Great Depression, which served only to kill it off completely. For example, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

 had gone off the gold standard in 1914, and could not effectively return to it as Germany had lost much of its remaining gold reserves in reparations. The German central bank
Reichsbank
The Reichsbank was the central bank of Germany from 1876 until 1945. It was founded on 1 January 1876 . The Reichsbank was a privately owned central bank of Prussia, under close control by the Reich government. Its first president was Hermann von Dechend...

 issued unbacked marks
German mark
The Deutsche Mark |mark]], abbreviated "DM") was the official currency of West Germany and Germany until the adoption of the euro in 2002. It is commonly called the "Deutschmark" in English but not in German. Germans often say "Mark" or "D-Mark"...

 virtually without limit to buy foreign currency for further reparations and to support workers during the Occupation of the Ruhr
Occupation of the Ruhr
The Occupation of the Ruhr between 1923 and 1925, by troops from France and Belgium, was a response to the failure of the German Weimar Republic under Chancellor Cuno to pay reparations in the aftermath of World War I.-Background:...

 finally leading to hyperinflation in the 1920s
Inflation in the Weimar Republic
The hyperinflation in the Weimar Republic was a three year period of hyperinflation in Germany between June 1921 and July 1924.- Analysis :...

.

The gold bullion standard and the decline of the gold standard (1925–31)


The gold specie standard ended in the United Kingdom and the rest of the British Empire at the outbreak of World War I. Treasury notes replaced the circulation of the gold sovereigns and gold half sovereigns. However, legally, the gold specie standard was not repealed. The end of the gold standard was successfully effected by appeals to patriotism when somebody would request the Bank of England to redeem their paper money for gold specie. It was only in the year 1925 when Britain returned to the gold standard in conjunction with Australia and South Africa that the gold specie standard was officially ended.

The British Gold Standard Act 1925 both introduced the gold bullion standard and simultaneously repealed the gold specie standard. The new gold bullion standard did not envisage any return to the circulation of gold specie coins. Instead, the law compelled the authorities to sell gold bullion on demand at a fixed price. This gold bullion standard lasted until 1931. On September 19, 1931, the United Kingdom left the revised gold standard, forced to suspend the gold bullion standard due to large outflows of gold across the Atlantic Ocean. The British benefited from the departure. They could now use monetary policy to stimulate the economy through the lowering of interest rates. Australia and New Zealand had already been forced off the gold standard by the same pressures connected with the Great Depression, and Canada quickly followed suit with the United Kingdom.

Prolongation of the Great Depression


Some economic historians, such as American professor Barry Eichengreen, blame the gold standard of the 1920s for prolonging the Great Depression. Others including Federal Reserve Chairman Ben Bernanke
Ben Bernanke
Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....

 and Nobel Prize winning economist Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...

 place some blame at the feet of the Federal Reserve. The gold standard limited the flexibility of central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...

s' monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

 by limiting their ability to expand the money supply, and thus their ability to lower interest rates. In the US, the Federal Reserve was required by law to have 40% gold backing of its Federal Reserve demand notes, and thus, could not expand the money supply beyond what was allowed by the gold reserves held in their vaults.

In the early 1930s, the Federal Reserve defended the fixed price of dollars in respect to the gold standard by raising interest rates, trying to increase the demand for dollars. Its commitment and adherence to the gold standard explain why the U.S. did not engage in expansionary monetary policy. To compete in the international economy, the U.S. maintained high interest rates. This helped attract international investors who bought foreign assets with gold. Higher interest rates intensified the deflationary pressure on the dollar and reduced investment in U.S. banks. Commercial banks also converted Federal Reserve Notes to gold in 1931, reducing the Federal Reserve's gold reserves, and forcing a corresponding reduction in the amount of Federal Reserve Notes in circulation. This speculative attack on the dollar created a panic in the U.S. banking system. Fearing imminent devaluation of the dollar, many foreign and domestic depositors withdrew funds from U.S. banks to convert them into gold or other assets.

The forced contraction of the money supply caused by people removing funds from the banking system during the bank panics resulted in deflation; and even as nominal interest rates dropped, inflation-adjusted real interest rates remained high, rewarding those that held onto money instead of spending it, causing a further slowdown in the economy. Recovery in the United States was slower than in Britain, in part due to Congressional reluctance to abandon the gold standard and float the U.S. currency as Britain had done.

Congress passed the Gold Reserve Act
Gold Reserve Act
The United States Gold Reserve Act of January 30, 1934 required that all gold and gold certificates held by the Federal Reserve be surrendered and vested in the sole title of the United States Department of the Treasury....

 on 30 January 1934; the measure nationalized all gold by ordering the Federal Reserve banks to turn over their supply to the U.S. Treasury. In return the banks received gold certificates to be used as reserves against deposits and Federal Reserve notes. The act also authorized the president to devalue the gold dollar so that it would have no more than 60 percent of its existing weight. Under this authority the president, on 31 January 1934, fixed the value of the gold dollar at 59.06 cents.

British hesitate to return to gold standard


During the 1939–1942 period, the UK depleted much of its gold stock in purchases of munitions and weaponry on a "cash-and-carry
Cash and carry (World War II)
Cash and carry was a policy requested by U.S. President Franklin Delano Roosevelt at a special session of the United States Congress on September 21, 1939, as World War II was spreading throughout Europe. It replaced the Neutrality Acts of 1936...

" basis from the U.S. and other nations. This depletion of the UK's reserve convinced Winston Churchill of the impracticality of returning to a pre-war style gold standard.

John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...

, who had argued against such a gold standard, proposed to put the power to print money in the hands of the privately owned Bank of England. Keynes, in warning about the menaces of inflation, said "By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some".

Quite possibly because of this, the 1944 Bretton Woods Agreement established the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

 and an international monetary system based on convertibility of the various national currencies into a U.S. dollar that was in turn convertible into gold.

Post-war international gold-dollar standard (1946–1971)



After the Second World War, a system similar to a Gold Standard and sometimes described as a "gold exchange standard" was established by the Bretton Woods Agreements. Under this system, many countries fixed their exchange rates relative to the U.S. dollar. The U.S. promised to fix the price of gold at approximately $35 per ounce. Implicitly, then, all currencies pegged to the dollar also had a fixed value in terms of gold. Under the administration of the French President Charles de Gaulle
Charles de Gaulle
Charles André Joseph Marie de Gaulle was a French general and statesman who led the Free French Forces during World War II. He later founded the French Fifth Republic in 1958 and served as its first President from 1959 to 1969....

 up to 1970, France reduced its dollar reserves, trading them for gold from the U.S. government, thereby reducing U.S. economic influence abroad. This, along with the fiscal strain of federal expenditures for the Vietnam War
Vietnam War
The Vietnam War was a Cold War-era military conflict that occurred in Vietnam, Laos, and Cambodia from 1 November 1955 to the fall of Saigon on 30 April 1975. This war followed the First Indochina War and was fought between North Vietnam, supported by its communist allies, and the government of...

 and persistent balance of payments deficits, led President Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...

 to end the direct convertibility of the dollar to gold on August 15, 1971, resulting in the system's breakdown (the "Nixon Shock
Nixon Shock
The Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon in 1971 including unilaterally cancelling the direct convertibility of the United States dollar to gold that essentially ended the existing Bretton Woods system of international financial exchange.-Background:By...

").

Theory


Commodity money is inconvenient to store and transport. Further, it does not allow a government to manipulate or restrict the flow of commerce within its dominion with the same ease that a fiat currency does. As such, commodity money gave way to representative money, and gold and other specie
Coin
A coin is a piece of hard material that is standardized in weight, is produced in large quantities in order to facilitate trade, and primarily can be used as a legal tender token for commerce in the designated country, region, or territory....

 were retained as its backing.

Gold was a common form of money due to its rarity, durability, divisibility, fungibility
Fungibility
Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution, such as crude oil, wheat, precious metals or currencies...

, and ease of identification, often in conjunction with silver. Silver was typically the main circulating medium, with gold as the metal of monetary reserve.

The gold standard variously specified how the gold backing would be implemented, including the amount of specie per currency unit. The currency itself is just paper and so has no intrinsic value, but is accepted by traders because it can be redeemed any time for the equivalent specie. A U.S. silver certificate
Silver Certificate
Silver Certificates are a type of representative money printed from 1878 to 1964 in the United States as part of its circulation of paper currency. They were produced in response to silver agitation by citizens who were angered by the Fourth Coinage Act, which had effectively placed the United...

, for example, could be redeemed for an actual piece of silver.

Representative money and the gold standard protect citizens from hyperinflation
Hyperinflation
In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...

 and other abuses of monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

, as were seen in some countries during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

. However, they were not without their problems and critics, and so were partially abandoned via the international adoption of the Bretton Woods System
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...

. That system eventually collapsed in 1971, at which time nearly all nations had switched to full fiat money.

According to Keynesian analysis, the earliness with which a country left the gold standard reliably predicted its economic recovery from the great depression. For example, Great Britain and Scandinavia, which left the gold standard in 1931, recovered much earlier than France and Belgium, which remained on gold much longer. Countries such as China, which had a silver standard, almost avoided the depression entirely. The connection between leaving the gold standard as a strong predictor of that country's severity of its depression and the length of time of its recovery has been shown to be consistent for dozens of countries, including developing countries. This may explain why the experience and length of the depression differed between national economies.

Differing definitions


A 100%-reserve gold standard, or a full gold standard, exists when a monetary authority holds sufficient gold to convert all of the representative money it has issued into gold at the promised exchange rate. It is sometimes referred to as the gold specie standard to more easily identify it from other forms of the gold standard that have existed at various times. Opponents of a 100%-reserve standard consider a 100%-reserve standard difficult to implement, saying that the quantity of gold in the world is too small to sustain current worldwide economic activity at current gold prices; implementation would entail a many-fold increase in the price of gold. However, proponents of the gold standard have said that any amount of gold can serve as the reserve: "Once a money is established, any stock of money becomes compatible with any amount of employment and real income." According to them the prices of goods and services will adjust to the supply of gold.

In an international gold-standard system (which is necessarily based on an internal gold standard in the countries concerned), gold or a currency that is convertible into gold at a fixed price is used as a means of making international payments. Under such a system, when exchange rates rise above or fall below the fixed mint rate by more than the cost of shipping gold from one country to another, large inflows or outflows occur until the rates return to the official level. International gold standards often limit which entities have the right to redeem currency for gold. Under the Bretton Woods system
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...

, these were called "SDRs" for Special Drawing Rights
Special Drawing Rights
Special Drawing Rights are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund . Not a currency, SDRs instead represent a claim to currency held by IMF member countries for which they may be exchanged...

.

Advantages

  • Long-term price stability has been described as the great virtue of the gold standard. Under the gold standard, high levels of inflation are rare, and hyperinflation
    Hyperinflation
    In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...

     is nearly impossible as the money supply can only grow at the rate that the gold supply increases. Economy-wide price increases caused by ever-increasing amounts of currency chasing a constant supply of goods are rare, as gold supply for monetary use is limited by the available gold that can be minted into coin. High levels of inflation under a gold standard are usually seen only when warfare destroys a large part of the economy, reducing the production of goods, or when a major new source of gold becomes available. In the U.S. one of those periods of warfare was the Civil War, which destroyed the economy of the South, while the California Gold Rush made large amounts of gold available for minting.
  • The gold standard limits the power of governments to inflate prices through excessive issuance of paper currency. It provides fixed international exchange rates between those countries that have adopted it, and thus reduces uncertainty in international trade. Historically, imbalances between price levels in different countries would be partly or wholly offset by an automatic balance-of-payment adjustment mechanism called the "price specie flow mechanism
    Price specie flow mechanism
    The price–specie flow mechanism is a logical argument by David Hume against the Mercantilist idea that a nation should strive for a positive balance of trade, or net exports...

    ."
  • The gold standard makes chronic deficit spending by governments more difficult, as it prevents governments from inflating away the real value of their debts. A central bank cannot be an unlimited buyer of last resort of government debt. A central bank could not create unlimited quantities of money at will, as there is a limited supply of gold.
  • Deflation rewards savers.

Disadvantages


  • The total amount of gold that has ever been mined has been estimated at around 142,000 metric tons. This is less than the value of circulating money in the U.S. alone, where more than $8.3 trillion is in circulation or in deposit (M2). Therefore, a return to the gold standard, if also combined with a mandated end to fractional reserve banking, would result in a significant increase in the current value of gold, which may limit its use in current applications.
  • Deflation punishes debtors. Real debt burdens therefore rise, causing borrowers to cut spending to service their debts or to default. Lenders become wealthier, but may choose to save some of their additional wealth rather than spending it all. The overall amount of expenditure is therefore likely to fall.
  • Mainstream
    Mainstream economics
    Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...

     economists believe that economic recessions can be largely mitigated by increasing money supply during economic downturns. Following a gold standard would mean that the amount of money would be determined by the supply of gold, and hence monetary policy
    Monetary policy
    Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

     could no longer be used to stabilize the economy in times of economic recession
    Recession
    In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...

    . Such reason is often employed to partially blame the gold standard for the Great Depression, citing that the Federal Reserve couldn't expand credit enough to offset the deflationary forces at work in the market.
  • Monetary policy would essentially be determined by the rate of gold production. Fluctuations in the amount of gold that is mined could cause inflation if there is an increase, or deflation if there is a decrease. Some hold the view that this contributed to the severity and length of the Great Depression as the gold standard forced the central banks to keep monetary policy too tight, creating deflation.
  • The unequal distribution of gold as a natural resource makes the gold standard much more advantageous in terms of cost and international economic empowerment for some countries (such as the Republic of South Africa which possess an estimated half of all un-mined reserves), than for others (countries with no reserves of gold ore).
  • Although the gold standard gives long-run price stability, it does in the short run bring high price volatility. It has been argued by, among others, Anna Schwartz
    Anna Schwartz
    Anna Jacobson Schwartz is an economist at the National Bureau of Economic Research in New York City, and according to Paul Krugman "one of the world's greatest monetary scholars"...

     that this kind of instability in short-term price levels can lead to financial instability as lenders and borrowers become uncertain about the value of debt.
  • James Hamilton
    James D. Hamilton
    James Douglas "Jim" Hamilton is an US econometrician currently teaching at University of California, San Diego. His work is especially influential in time series and energy economics...

     contended that the gold standard may be susceptible to speculative attacks when a government's financial position appears weak, although others contend that this very threat discourages governments' engaging in risky policy (see Moral Hazard
    Moral hazard
    In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...

    ). For example, some believe that the United States was forced to raise its interest rates in the middle of the Great Depression to defend the credibility of its currency after unusually easy credit policies in the 1920s.
  • If a country wanted to devalue its currency, a gold standard would generally produce sharper changes than the smooth declines seen in fiat currencies, depending on the method of devaluation.
  • Most economists favor a low, positive rate of inflation. Partly this reflects fear of deflationary shocks, but primarily because they believe that central banks still have some role to play in dampening fluctuations in output and unemployment. Central banks can more safely play that role when a positive rate of inflation gives them room to tighten money growth without inducing price declines.
  • It is difficult to manipulate a gold standard to tailor to an economy’s demand for money, providing practical constraints against the measures that central banks might otherwise use to respond to economic crises.

Advocates of a renewed gold standard


The return to the gold standard is supported by many followers of the Austrian School of Economics, Objectivists
Objectivism (Ayn Rand)
Objectivism is a philosophy created by the Russian-American philosopher and novelist Ayn Rand . Objectivism holds that reality exists independent of consciousness, that human beings have direct contact with reality through sense perception, that one can attain objective knowledge from perception...

, free-market libertarians and, in the United States, by strict constitutionalists largely because they object to the role of the government in issuing fiat currency through central banks. A significant number of gold-standard advocates also call for a mandated end to fractional-reserve banking
Fractional-reserve banking
Fractional-reserve banking is a form of banking where banks maintain reserves that are only a fraction of the customer's deposits. Funds deposited into a bank are mostly lent out, and a bank keeps only a fraction of the quantity of deposits as reserves...

.

Few politicians today advocate a return to the gold standard, other than adherents of the Austrian school and some supply-siders
Supply-side economics
Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing...

. However, some prominent economists have expressed sympathy with a hard-currency basis, and have argued against politically-controlled fiat money
Fiat money
Fiat money is money that has value only because of government regulation or law. The term derives from the Latin fiat, meaning "let it be done", as such money is established by government decree. Where fiat money is used as currency, the term fiat currency is used.Fiat money originated in 11th...

, including former U.S. Federal Reserve Chairman Alan Greenspan
Alan Greenspan
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

 (himself a former Objectivist), and macro-economist Robert Barro
Robert Barro
Robert Joseph Barro is an American classical macroeconomist and the Paul M. Warburg Professor of Economics at Harvard University. The Research Papers in Economics project ranked him as the 4th most influential economist in the world as of August 2011 based on his academic contributions...

. Greenspan famously argued the case for returning to a 'pure' gold standard in his 1966 paper "Gold and Economic Freedom", in which he described supporters of fiat currencies as "welfare statists" intent on using monetary policies to finance deficit spending. Barro argues in favor of adopting some form of "monetary constitution" that will provide stability to monetary policy rather than allowing decisions about monetary policy to be made on the basis of politics, but suggests that what form this constitution takes—for example, a gold standard, some other commodity-based standard, or a fiat currency with fixed rules for determining the quantity of money—is considerably less important. U.S. Congressman Ron Paul
Ron Paul
Ronald Ernest "Ron" Paul is an American physician, author and United States Congressman who is seeking to be the Republican Party candidate in the 2012 presidential election. Paul represents Texas's 14th congressional district, which covers an area south and southwest of Houston that includes...

 has continually argued for the reinstatement of the gold standard, but is no longer a strict advocate, instead supporting a basket of commodities that emerges on the free markets.

For the time being, the global monetary system continues to rely on the U.S. dollar as a reserve currency
Reserve currency
A reserve currency, or anchor currency, is a currency that is held in significant quantities by many governments and institutions as part of their foreign exchange reserves...

 by which major transactions, such as the price of gold itself, are measured. A host of alternatives has been suggested, including energy-based currencies, and market baskets of currencies or commodities, gold being one of the alternatives.

In 2001, Malaysian Prime Minister Mahathir bin Mohamad
Mahathir bin Mohamad
Tun Dr. Mahathir bin Mohamad . is a Malaysian politician who was the fourth Prime Minister of Malaysia. He held the post for 22 years from 1981 to 2003, making him Malaysia's longest serving Prime Minister. His political career spanned almost 40 years.Born and raised in Alor Setar, Kedah, Mahathir...

 proposed a new currency that would be used initially for international trade among Muslim nations. The currency he proposed was called the Islamic gold dinar
Islamic gold dinar
The modern Islamic gold dinar is a currency that aims to revive the historical gold dinar which was a leading coin of early Islam. They consist of minted gold coins, Dinar, and silver coins, Dirham.-Dinar history:According to Islamic law, the Islamic dinar is a coin of pure gold weighing...

 and it was defined as 4.25 grams of pure (24-carat
Carat (purity)
The karat or carat is a unit of purity for gold alloys.- Measure :Karat purity is measured as 24 times the purity by mass:where...

) gold. Mahathir Mohamad promoted the concept on the basis of its economic merits as a stable unit of account and also as a political symbol to create greater unity between Islamic nations. The purported purpose of this move would be to reduce dependence on the United States dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....

 as a reserve currency, and to establish a non-debt-backed currency in accord with Islamic law
Sharia
Sharia law, is the moral code and religious law of Islam. Sharia is derived from two primary sources of Islamic law: the precepts set forth in the Quran, and the example set by the Islamic prophet Muhammad in the Sunnah. Fiqh jurisprudence interprets and extends the application of sharia to...

 against the charging of interest. However, to date, Mahathir's proposed gold-dinar currency has failed to take hold.

In 2011, the legislature of the state of Utah
Utah
Utah is a state in the Western United States. It was the 45th state to join the Union, on January 4, 1896. Approximately 80% of Utah's 2,763,885 people live along the Wasatch Front, centering on Salt Lake City. This leaves vast expanses of the state nearly uninhabited, making the population the...

 passed a bill to accept federally-issued gold and silver coins as legal tender to pay taxes. Similar legislation is under consideration in a number of other US states.

Gold as a reserve today



The Swiss Franc
Swiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...

 was based on a 40% legal gold-reserve requirement from 1936, when it ended gold convertibility, until 2000. Gold reserves are held in significant quantity by many nations as a means of defending their currency, and hedging against the U.S. Dollar, which forms the bulk of liquid currency reserves.

Both gold coin
Gold coin
A gold coin is a coin made mostly or entirely of gold. Gold has been used for coins practically since the invention of coinage, originally because of gold's intrinsic value...

s and gold bar
Gold bar
A gold bar is a quantity of refined metallic gold of any shape that is made by a bar producer meeting standard conditions of manufacture, labeling, and record keeping....

s are widely traded in liquid markets, and therefore still serve as a private store of wealth
Wealth
Wealth is the abundance of valuable resources or material possessions. The word wealth is derived from the old English wela, which is from an Indo-European word stem...

. Some privately issued currencies, such as digital gold currency
Digital gold currency
Digital gold currency is a form of electronic money based on ounces of gold. It is a kind of representative money, like a US paper gold certificate at the time that these were exchangeable for gold on demand. The typical unit of account for such currency is the gold gram or the troy ounce,...

, are backed by gold reserves.

In 1999, to protect the value of gold as a reserve, European Central Bank
European Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...

ers signed the Washington Agreement on Gold
Washington Agreement on Gold
The Washington Agreement on Gold was signed of 26 September 1999 in Washington, D.C. during the International Monetary Fund annual meeting, and the US Secretary of the Treasury, Lawrence Summers, and the Chairman of the Federal Reserve, Alan Greenspan, were present.-Scope:"Under the agreement, the...

, which stated that they would not allow gold leasing for speculative purposes, nor would they enter the market as sellers except for sales that had already been agreed upon.

See also



  • A Program for Monetary Reform (1939) – The Gold Standard
  • Bimetallism
    Bimetallism
    In economics, bimetallism is a monetary standard in which the value of the monetary unit is defined as equivalent both to a certain quantity of gold and to a certain quantity of silver; such a system establishes a fixed rate of exchange between the two metals...

  • Coinage Act of 1792
  • Coinage Act of 1873
  • Federal Reserve System
    Federal Reserve System
    The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...

  • Full-reserve banking
    Full-reserve banking
    Full-reserve banking, also known as 100% reserve banking, is a banking practice in which the full amount of each depositor's funds are kept in reserve, as cash or other highly liquid assets...

  • Gold as an investment
    Gold as an investment
    Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a hedge or harbor against economic, political, or social fiat currency crises...

  • Gold bug
    Gold bug
    Gold Bug is a term used to describe investors who are very bullish on buying the commodity gold . It can also be used to refer to a person who opposes or criticizes the use of fiat currency and supports a return to the use of the Gold Standard or some other currency system based on the value of...

  • Gold Points
    Gold Points
    Gold points was a term which referred to the rates of foreign exchange likely to cause movements of gold between countries adhering to the gold standard.-Application:...

  • Gold Reserve Act
    Gold Reserve Act
    The United States Gold Reserve Act of January 30, 1934 required that all gold and gold certificates held by the Federal Reserve be surrendered and vested in the sole title of the United States Department of the Treasury....

  • Metal as money
    Metal as money
    Throughout history, various metals, some of which are considered precious today, appear to have been used as a form of currency. The Bretton Woods system, under which all major currencies were theoretically exchangeable for gold, was abolished in 1971....

  • Metallism
    Metallism
    Metallism is a type of monetary system in which silver, gold or other metals are used as money.Usually, that word refers to a system where that kind of money is a legal tender.-Metallism versus fiat monetary systems:...

  • Representative money
    Representative money
    The term representative money has been used variously to mean:*a claim on a commodity, for example gold certificates or silver certificates. In this sense it may be called 'commodity-backed money'....

  • Silver standard
    Silver standard
    The silver standard is a monetary system in which the standard economic unit of account is a fixed weight of silver. The silver specie standard was widespread from the fall of the Byzantine Empire until the 19th century...

  • Store of value
    Store of value
    A recognized form of exchange can be a form of money or currency, a commodity like gold, or financial capital. To act as a store of value, these forms must be able to be saved and retrieved at a later time, and be predictably useful when retrieved....

  • The Great Deflation
    The Great Deflation
    The Great Deflation or the Great Sag refers to the period from 1870 until 1890 in which world prices of goods, materials and labor decreased, although at a low rate of less than 2% annually...

  • Latin Monetary Union
    Latin Monetary Union
    The Latin Monetary Union was a 19th century attempt to unify several European currencies, at a time when most circulating coins were still made of gold and silver...



International institutions
  • Bank for International Settlements
    Bank for International Settlements
    The Bank for International Settlements is an intergovernmental organization of central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks." It is not accountable to any national government...

  • International Monetary Fund
    International Monetary Fund
    The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

  • United Nations Monetary and Financial Conference
    United Nations Monetary and Financial Conference
    The United Nations Monetary and Financial Conference, commonly known as the Bretton Woods conference, was a gathering of 730 delegates from all 44 Allied nations at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire, to regulate the international monetary and financial order after...

  • World Bank
    World Bank
    The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...


Further reading

  • Gold Keeps Shining, 40 Years After Nixon Ended Gold Standard, an April 2011 radio and Internet feature story by the Special English
    Special English
    Special English is a controlled version of the English language first used on October 19, 1959, and still presented daily by the United States broadcasting service Voice of America. World news and other programs are read one-third slower than regular VOA English. Reporters avoid idioms and use a...

     service of the Voice of America
    Voice of America
    Voice of America is the official external broadcast institution of the United States federal government. It is one of five civilian U.S. international broadcasters working under the umbrella of the Broadcasting Board of Governors . VOA provides a wide range of programming for broadcast on radio...

    . Also published as:

External links