Since the Coinage Act of 1792, the United States was functioning under a bimetallic standard: gold and silver. Until 1873, the German empire dropped the coinage of silver causing a downward pressure in value. This prompted the United States to fully embrace gold. By the end of 1870s, all other major countries switched to the gold standard, and began what was known as the Classical Gold Standard.
By 1914, the standard came to an end as World War I broke
out. Countries abandoned the gold standard in order to finance the war. The
year prior, The Federal Reserve Act of 1913 created the nation's central bank in
an attempt to curtail economic fluctuations, This gave the Federal Reserve Board the power
to issue new currency called Federal Reserve Notes.
From 1925 to 1931, another gold standard was brought back- known as the Gold Exchange Standard. The primary reserves were held as dollars, pounds, or gold. The standard was short-lived due to Britain’s departure from gold in 1931, which sought the ability to pursue inflationary practices.
From 1946 to 1971, the U.S.and most countries were tied to a partial gold standard known as Bretton Woods system. Countries currency's were tied to the U.S. dollar, which in turn is tied to Gold. Persistent U.S. inflationary practices reduced confidence in the U.S. dollar. As a result, countries began redeeming the dollar for gold. By August 15, 1971, the United States declared the ineligibility to redeem U.S. dollar for gold.
Analysis
In the 1870s, we see how competing nations can force the U.S. to adopt the gold standard or be left behind. Then in 1931, Britain left the gold exchange standard- pressuring others to follow. Finally, on 1971, we see how dwindling confidence can cause a run on the reserve currency. There are two observations one can safely make:
1.) It is without a doubt, that the U.S. again, will be forced by the external markets to adopt a new monetary standard.
2.) More importantly, anyone holding onto a paper currency and gold from 1914 would find that only gold still has value.
A final word in regards to investing, one could stand to benefit greatly if they got in before the masses. The masses have yet to participate.
Michael D. Bordo, "Gold Standard." The Concise Encyclopedia of Economics. 2008.
From 1925 to 1931, another gold standard was brought back- known as the Gold Exchange Standard. The primary reserves were held as dollars, pounds, or gold. The standard was short-lived due to Britain’s departure from gold in 1931, which sought the ability to pursue inflationary practices.
From 1946 to 1971, the U.S.and most countries were tied to a partial gold standard known as Bretton Woods system. Countries currency's were tied to the U.S. dollar, which in turn is tied to Gold. Persistent U.S. inflationary practices reduced confidence in the U.S. dollar. As a result, countries began redeeming the dollar for gold. By August 15, 1971, the United States declared the ineligibility to redeem U.S. dollar for gold.
Analysis
In the 1870s, we see how competing nations can force the U.S. to adopt the gold standard or be left behind. Then in 1931, Britain left the gold exchange standard- pressuring others to follow. Finally, on 1971, we see how dwindling confidence can cause a run on the reserve currency. There are two observations one can safely make:
1.) It is without a doubt, that the U.S. again, will be forced by the external markets to adopt a new monetary standard.
2.) More importantly, anyone holding onto a paper currency and gold from 1914 would find that only gold still has value.
A final word in regards to investing, one could stand to benefit greatly if they got in before the masses. The masses have yet to participate.
Michael D. Bordo, "Gold Standard." The Concise Encyclopedia of Economics. 2008.
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