The Gold Standard Abandoned

The gold standard is a system where all the money in the economy directly represents a set quantity of gold. For example, a paper note might represent a tenth of an ounce of gold.

The idea for the gold standard began to develop as economies switched from direct exchange of precious metals through coinage, to paper money. The first country to adopt the gold standard was England in 1821, and it was fully adopted internationally in 1871.

The gold standard was a very effective system that caused a boom in international trade, but problems began to develop in 1914 with the beginning of the Great War. Many nations got deeply into debt, and temporarily suspended the gold standard. Some countries started selling off most of their gold to cover debts, and this resulted in the vast majority of the world's gold only being held by the largest economies.

In the early 30's Franklin Roosevelt outlawed all private gold ownership beyond its use in jewelry, and then the US government revalued gold from 20.67 an ounce to 35.00 an ounce as a way to help the US economy. Other countries instantly reacted by selling large quantities of gold to the US in exchange for dollars, which allowed them to completely dominate the gold market. By the end of WWII, the US held 75% of the world's gold.

This situation led to the development of the Bretton Woods agreement, which was designed to help simplify global trade. In basic terms, all the major economies of the world agreed to back their currency with the US dollar, which was backed by a fixed rate of gold equaling 35 ounces of bullion. This led to the golden age of the dollar as a world currency.

This situation slowly deteriorated as the USA gradually let its gold reserves fall. The inflation in the 60's was the final nail in the coffin of the gold standard.

In 1971, as a way to stabilize the economy, Richard Nixon imposed a price freeze, put a 10 percent surcharge on imports, and ended the conversion of dollars into gold. This resulted in the total end of the gold standard worldwide, and currently, there is no country in the world that uses a gold standard. There are international calls for a return to the gold standard from some circles because of the perceived stability of gold based currency, but it will probably be an uphill climb to get back to that kind of monetary approach.

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