The Gold Standard

This gold standard survived with variations until 1971. It was at this time that France and Britain wanted to redeem their U.S. dollars for gold at the defined rate of $35 per troy ounce, which President Roosevelt had set all the way back in 1933. But the U.S. Treasury's amount of physical gold was far less than the amount of dollars held by the central banks of other countries. France's and Britain's requests would have depleted U.S. gold reserves.

The End of a Gold Standard

With this run on gold in 1971, President Nixon brought an end to the gold standard by refusing to pay out any of the U.S.'s remaining gold in exchange for paper dollars. U.S. dollars could no longer be redeemed for gold by foreign governments and central banks. It wasn't until 1975 that the law making it illegal for U.S. citizens to own gold was eliminated after existing for 42 years. Since 1971, fiat money, rather than gold-backed money, has been the type of currency used in all major economies. Because a fiat currency is not backed by a resource that's limited in supply, such as gold, there's no physical constraint on the amount of money the Federal Reserve may print.

As the U.S. Federal Reserve prints more paper money and increases the money supply, the demand for gold tends to increase as more people and institutions buy it as a way to preserve the value of their money against inflation.

Cha-ching! That's all for now, courtesy of Money Girl, your guide to a richer life. As always, everyone's situation is different, so be sure to consult a tax or financial advisor before making important financial decisions. This podcast is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice.

(1) The official gold price from 1900 to 1933 was $20.67 per troy ounce.

Related Links:

Money as Debt video by Paul Grignon

Money as Debt Web site and DVD

Picture of a gold-backed $50 dollar bill

The price of gold (1997 to Present)

1933: FDR confiscates gold (video)