What is the gold standard?
The Gold Standard is a monetary system that directly links a currency’s value to that of gold. This means that country on the gold standard cannot increase the amount of money in circulation without also increasing its gold reserves. As the global gold supply grows only slowly, being on the gold standard would restrain government overspending and help keep inflation under control. Today no country currently backs its currency with gold, but many have in the past, including the U.S.. Back in 1879, Americans could trade in $20.67 for an ounce of gold. The country abandoned the gold standard in 1933 under Roosevelt , and completely severed the link between the dollar and gold in 1971. The U.S. now has a fiat money system, meaning the dollar’s value is not linked to any specific asset.
Why did the U.S. abandon the gold standard?
To help combat the Great Depression in and faced with mounting unemployment and spiraling deflation in the early 1930s, the U.S. government found it could do little to stimulate the economy.
To deter people from cashing in deposits and depleting the gold supply, the U.S. and other governments had to keep interest rates high, but that made it too expensive for people and businesses to borrow. So in 1933, President Franklin D. Roosevelt cut the dollar’s ties with gold, allowing the government to pump money into the economy and lower interest rates.
“Most economists now agree 90 percent of the reason why the U.S. got out of the Great Depression was the break with gold,” Liaquat Ahamed,
The U.S. continued to allow foreign governments to exchange dollars for gold until 1971, when President Richard Nixon abruptly ended the practice to stop dollar-flush foreigners from sapping U.S. gold reserves.
Nixon address to the nation 15 August 1971
This charts the gold price v US dollar since 1971 and devaluation of the dollar due to the loss of purchasing power brought about by excessive printing of money.