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History of US Gold Standard

History of US Gold Standard

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Published by lbrty4all9227
A Congressional Research Service (CRS) of the Library of Congress brief on the history of the gold standard in the United States.
A Congressional Research Service (CRS) of the Library of Congress brief on the history of the gold standard in the United States.

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Published by: lbrty4all9227 on Aug 21, 2011
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05/24/2012

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CRS Report for Congress
Prepared for Members and Committees of Congress
Brief History of the Gold Standard in theUnited States
Craig K. Elwell
Specialist in Macroeconomic Policy June 23, 2011
Congressional Research Service
7-5700www.crs.govR41887
 
Brief History of the Gold Standard in the United StatesCongressional Research Service
Summary
The U.S. monetary system is based on paper money backed by the full faith and credit of thefederal government. The currency is neither valued in, backed by, nor officially convertible intogold or silver. Through much of its history, however, the United States was on a metallic standardof one sort or another.On occasion, there are calls for Congress to return to such a system. Such calls are usuallyaccompanied by claims that gold or silver backing has provided considerable economic benefitsin the past. This report briefly reviews the history of the gold standard in the United States. It isintended to clarify the dates during which the standard was used, the type of gold standard inoperation at the various times, and the statutory changes used to alter the standard and eventuallyend it. It is not a discussion of the merits of such a system.The United States began with a bimetallic standard in which the dollar was defined in terms of both gold or silver at weights and fineness such that gold and silver were set in value to eachother at a ratio of 15 to 1. Because world markets valued them at a 15½ to 1 ratio, much of thegold left the country and silver was the de facto standard.In 1834, the gold content of the dollar was reduced to make the ratio 16 to 1. As a result, silverleft the country and gold became the de facto standard. In addition, gold discoveries drove downthe value of gold even more, so that even small silver coins disappeared from circulation. In1853, the silver content of small coins was reduced below their official face value so that thepublic could have the coins needed to make change.During the Civil War, the government issued legal tender paper money that was not redeemable ingold or silver, effectively placing the country on a fiat paper system. In 1879, the country wasreturned to a metallic standard; this time a single one: gold. Throughout the late 19
th
century,there were efforts to remonetize silver. A quantity of silver money was issued; however, itsintrinsic value did not equal the face value of the money, nor was silver freely convertible intomoney. In 1900, the United States reaffirmed its commitment to the gold standard and relegatedsilver to small denomination money.Throughout the period under which the United States had a metallic standard, paper money wasextensively used. A variety of bank notes circulated, even without being legal tender. Variousnotes issued by the Treasury also circulated without being legal tender. This use of paper moneyis entirely consistent with a gold standard. Much of the money used under a gold standard is notgold, but promises to pay gold. To help ensure that the paper notes theretofore issued by bankswere honored, the government created the national bank system in 1863. In 1913, it created theFederal Reserve System to help ensure that checks were similarly honored. The creation of theFederal Reserve did not end the gold standard.The gold standard ended in 1933 when the federal government halted convertibility of notes intogold and nationalized the private gold stock. The dollar was devalued in terms of its gold content,and made convertible into gold for official international transactions only. Even this quasi-goldstandard became difficult to maintain in the 1960s. Over the period 1967-1973, the United Statesabandoned its commitment to covert dollars into gold in official transactions and stopped tryingto maintain its value relative to foreign exchange. Despite several attempts to retain some link togold, all official links of the dollar to gold were severed in 1976.
 
Brief History of the Gold Standard in the United StatesCongressional Research Service
Contents
Introduction................................................................................................................................1
 
Gold Standards............................................................................................................................1
 
What Is a Gold Standard?......................................................................................................1
 
Legal Tender.........................................................................................................................2
 
Basically Silver: 1792-1834........................................................................................................2
 
Basically Gold: 1834-1862..........................................................................................................3
 
Paper Money in the Antebellum Period.......................................................................................4
 
Bank Notes...........................................................................................................................4
 
Circulating Treasury Notes....................................................................................................4
 
Bills of Exchange..................................................................................................................5
 
Fiat Paper Money: 1862-1879.....................................................................................................5
 
A True Gold Standard: 1879-1933...............................................................................................6
 
Silver and Silver Certificates.................................................................................................6
 
Gold Certificates and Treasury Notes....................................................................................7
 
National Bank Notes.............................................................................................................7
 
Gold Standard Act of 1900....................................................................................................8
 
The Federal Reserve System During the Gold Standard.........................................................8
 
The End of the Gold Standard: 1933............................................................................................9
 
Quasi-Gold Standard: 1934-1973..............................................................................................11
 
Cutting the Links to Gold: 1967-1973.......................................................................................13
 
Conclusion................................................................................................................................14
 
Contacts
Author Contact Information......................................................................................................15
 
Acknowledgments....................................................................................................................15
 

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