Today In History: U.S. Switches Off Gold Standard
Today in 1933, the United States moved the economy off of the gold standard. Previously, the value of the dollar was guaranteed by literal gold held in Federal reserves. On June 5, Congress passed a joint resolution that revoked creditors’ ability to request an exchange of paper money for an equivalent amount of gold, marking the first time the country had moved away from the gold standard since 1879.
When Franklin Delano Roosevelt assumed office in 1933, he issued an injunction against the banks paying out gold, or exporting it, out of fear that people would panic and make a run on the banks. It was a large-scale experiment in Keynesian theory, which stated that deliberate inflation of the money supply would stave off the worst effects of a depression, and that larger stockpiles of gold would allow the state to orchestrate higher inflation.
On April 5 of 1933, FDR recalled all gold coins, gold bouillon and gold certificates worth $100 or more that were in circulation, to be exchanged for other forms of money. The gold was exchanged at a standard price of $20.67 an ounce. The sweep brought in about $300 million in gold coins and $470 million in gold certificates.
Two months later, Congress nullified the legality of clauses in various public and private contracts that obligated debtors to repay creditors in gold dollars. In 1934, the state then increased the price of gold to $35 an ounce, which increased the value of the government’s gold by 69%. The government used the increase as leverage to implement more inflation.
The state’s valuation of gold at $35 per ounce was maintained until 1971, when Richard Nixon issued an announcement that the country was no longer going to convert gold at a static price. On August 15, the gold standard officially died. Three years later, president Gerald Ford put his name to legislation that once again made it legal for American citizens to own gold bouillon.
Fiat currency is still a contested idea, with many concerned parties calling for the restoration of the gold standard or something like it. Alternatives to the classical gold standard have been suggested, such as an energy-based currency or currency based on various commodities, including gold.