Today marks the 80th anniversary of President Franklin D. Roosevelt’s decision to remove the United States from the gold standard. Over the years, I’ve heard numerous economists and personal finance experts discuss the gold standard, but I’ve never really understood what it was. Sure, I took two economics classes when I was in college, but I was a disinterested teenager at the time and I didn’t pay much attention.
So, in honor of the 80th anniversary of this event, I decided to learn a little more about the gold standard today. Investopedia defines the gold standard as, “A monetary system in which a country's government allows its currency unit to be freely converted into fixed amounts of gold and vice versa. The exchange rate under the gold standard monetary system is determined by the economic difference for an ounce of gold between two currencies.”
Gold essentially backed up the paper dollar and the United States government, as well as other governments operating under the gold standard, had to have certain quantities of gold on hand. I understand the value of using an item with a tangible value, in this case gold, to assign value to a less tangible item like a printed U.S. dollar. However, I also see how could be seen as a cumbersome system.
What I find most interesting about the gold standard is that when FDR pulled the United States off that monetary system, the government assigned a fixed value per gold ounce. On May 1, 1933, the value was $20.67 per ounce, and in 1934 the value was bumped up to $35 per ounce.
It wasn’t until Aug. 15, 1971, that the government removed the $35 per ounce fixed price. A person who owned an ounce of gold in 1934 and held on to it for nearly 40 years would still only have an investment worth $35. Obviously gold was not meant to be used as a growth investment tool in the decades after the nation went off the gold standard.
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