The Gold Standard

Introduction

• Gold has been part of U.S. money supply since colonial period

• Gold rush in 1840s increased gold in circulation

• Congress passed Gold Standard Act in 1900, country moved to a gold standard

Going on the Gold Standard

• Gold Standard Act made $1 equal to 1/20.67 ounces of gold

• Different types of currency continued to circulate

• Currency could now be exchanged for gold• Currency was more convenient, so people

kept using it

Advantages of Gold Standard

• People feel more secure about currency• Prevents government from printing too much

money• Unlikely all money would be exchanged for

gold, so U.S. doesn’t have to hold gold equal to money

Disadvantages of Gold Standard

• Growing economy needs money supply to grow

• Country would need to increase gold supply• Gold is limited, so this may limit economic

growth• Many could convert cash to gold at same time,

which could drain gold supply

Abandoning the Gold Standard

• During Great Depression many exchanged money for gold, shrinking gold supply

• 1933 – Pres. Roosevelt denied gold standard to Americans

• People made to turn in gold coins for cash• 1935 – Only foreign countries allowed to

exchange cash for gold

• Post-WWII countries began exchanging money for gold, drained U.S. gold supply

• $35/oz price held until August 15, 1971 – Nixon declared U.S. wouldn’t trade money for gold

• Value has continued to fluctuate due to supply & demand

Abandoning the Gold Standard