The Fall of the Gold Standard

The United States formally adopted the gold standard in 1879, meaning that American currency was directly backed by gold reserves. Under this system, people could exchange their paper money for actual gold at a fixed rate. The government promised that every dollar in circulation was supported by a specific amount of gold stored in federal vaults. This gave Americans confidence in their 1 currencies value since gold had been considered precious and reliable for thousands of years.

The gold standard worked well during times of economic stability, but it created serious problems during financial crises. When people lost confidence in the economy, they would rush to exchange their paper money for 2 gold, draining the government’s reserves. This happened during the Great Depression of the 1930s, when bank failures caused widespread panic. President Franklin D. Roosevelt realized that the rigid gold standard was making the economic crisis worse by limiting the government’s ability to increase the money supply. 3 In 1933, he 4 made the once-unthinkable decision to abandon the gold standard during the Great Depression. He ordered Americans to turn in their gold coins and prohibited private gold ownership. This allowed the government to print more money and implement programs to help the struggling economy recover. While controversial at the time, most economists today agree that leaving the gold standard was necessary to end the Depression. 5