In 1900, the U.S. moved to a gold standard, at which point the dollar’s value was directly linked to the value of gold. In 1933, during the Great Depression, President Roosevelt suspended the gold standard, allowing the federal government more control over the value of the dollar. Today, some politicians are considering a return to the gold standard.
The Current Fiat System
After abandoning the gold standard, the U.S. embraced a fiat system, though which the actions of the federal government could affect the value of the dollar. Today, the government can print more money as prices drop and decrease money flow as prices rise, helping keep the economy stable. If the dollar was still on the gold standard, the U.S. government would be unable to have such a profound effect on the value of the dollar, as it would be linked to the value of gold no matter what.
Making the Conversion
The government’s ability to control the value of the dollar makes some people uneasy. They claim that the current fiat system essentially takes money from people by devaluing it. Some people are pushing for a more straightforward currency that is linked to gold. To make the conversion, the government would have to amass enough gold to redeem every dollar in circulation—about 2.6 trillion dollars’ worth. Considering that the gold reserve only has about $430 billion in gold, this could be a very difficult task.
Implications of a Return to Gold
Since the U.S. left the gold standard, economic recessions have been fewer and less severe. Returning to the gold standard would limit the government’s ability to control the economy, and likely lead to more frequent recessions. Tying the dollar to gold would be good for gold investors, but likely result in lower salaries for most of America’s workforce.
Considering the unknown implications of returning to the gold standard, it’s unlikely that it will happen any time soon. Still, those who are interested in gold like the Perth Gold Bar should contact California Numismatic Investments and start diversifying their portfolios. You can call our LA-area office at (800) 225-7531 to start discussing gold and silver investment opportunities.