Gold standard

A gold standard is a “monetary system in which the standard unit of currency is a fixed quantity of gold or is kept at the value of a fixed quantity of gold. The currency is freely convertible at home or abroad into a fixed amount of gold per unit of currency,” according to Encyclopædia Britannica. Under this system, paper money or coins could be taken to a bank and exchanged for the metal. At various points in history, the United States has run on a gold standard or a bimetallic (“consisting of two metals”) standard (in which the national currency is backed by gold and silver).[11]

Since 1971, however, the country has operated with fiat money, which, as Britannica explains, is “all kinds of money that are made legal tender by a government decree or fiat. The term is, however, usually reserved for legal-tender paper money or coins that have face values far exceeding their commodity values and are not redeemable in gold or silver.” In other words, fiat money is currency declared to be legal money (“legal tender”) by a government decree or “fiat”; it is not backed by a physical commodity (or exchangeable for a physical commodity) like gold or silver; and its value stems not from a physical commodity but from trust in the government, economic stability, and a central bank’s management of the currency’s supply and demand.[8]

1792–1862: The bimetallic standard

In April 1792 Congress passed the first Coinage Act, based on the recommendations of Treasury Secretary Alexander Hamilton, which established the U.S. Mint to provide official coin currency for the nation’s bimetallic monetary system (dollars valued in gold and silver). The act fixed the dollar as the equivalent of 24.75 grains of gold and 371.25 grains of silver. [71]

The act specified the production of coins in the following denominations: half cent and cent in copper; half dime, dime, quarter, half dollar, and dollar in silver; and quarter eagle ($2.50), half eagle ($5), and eagle ($10) in gold. In March 1793, the Mint provided 11,178 copper coins, the first circulating U.S. coins. [51]

The first U.S. Gold Eagle coins produced by the Philadelphia Mint in 1795 had a face value of $10 and contained 247.5 grains of pure gold. [71] [50]

Paper money (backed by gold and silver reserves) was also printed and circulated by banks and the U.S. Treasury, though there was no legal-tender paper money prior to the American Civil War. During this time large silver finds in Mexico and South America caused a decline in the market value of silver relative to gold, resulting in an influx of silver flowing to the U.S. mint for coinage. Gold coins began to leave circulation as their metal content became worth more than their face value. [39] [71]

To bring gold coins back into U.S. circulation, on June 28, 1834, Congress passed the Coinage Act of 1834 to reduce the gold value of one dollar to 23.2 grains of gold. Gold discoveries in Russia, Australia, and California in 1848 significantly increased the amount of gold on the market and further reduced its value in comparison to silver. [39] [78]

In 1849 the gold influx from California prompted Congress to authorize the minting and circulation of a $1 gold liberty coin and a $20 double eagle coin. At one-fourth of the size of a dime, the $1 liberty coin is the smallest U.S. coin that has ever existed. The $20 double eagle is the largest. [77]

By 1850 the silver content of coins was worth more melted down than the face value of the coin, and silver coins began to disappear from circulation. The Coinage Act of February 21, 1853, was passed. The Act lowered the silver content of the coins to increase circulation of small-value silver coins during a silver shortage. Some argue that this legislation pushed the United States closer to abandoning a bimetallic standard and adopting a full gold standard. [39] [49]

1862–79: The Civil War fiat standard

Civil War spending caused a Union shortage of legal tender coins, the only American legal tender currency at the time. In February 1862, less than one year after the outbreak of the Civil War, the United States passed the Legal Tender Act, authorizing the issue of the first paper fiat currency and creating a national currency for the first time. These bills, known as “greenbacks,” were not backed by gold or silver. To help finance the Civil War, the Union issued nearly $450 million of these greenbacks (and $500 billion in war bonds). The federal government had amassed a $2.76 billion national debt in 1866 (up from $65 million in 1860). [63] [79] [80] [48] [47]

In an attempt to move to a gold standard after the Civil War, the government began reducing the amount of money in circulation by destroying the greenback bills. By this time a national debate was boiling whether the government had a legal right to issue fiat currency. Creditors who were angry over the wartime inflation, which they believed the greenbacks had created, took the issue to court. [2] [82]

In 1870 Chief Justice of the U.S. Supreme Court Salmon P. Chase, reversing the position he held as treasury secretary that greenbacks were “necessary and proper,” led the Supreme Court majority opinion that portions of the Legal Tender Acts were unconstitutional in Hepburn v. Griswold. However, in 1871, the U.S. Supreme Court overturned that ruling and upheld the constitutionality of fiat currency with two decisions: Knox v. Lee and Parker v. Davis. [82]

The 1873 Fourth Coinage Act ended the ability to exchange silver at a fixed price and discontinued government production of silver dollars. Shortly after the act passed, the collapse of a large banking house (Jay Cooke & Co.) triggered the Panic of 1873. During the panic 101 banks failed as people rushed to withdraw their savings. [83] [84] [85]

The Greenback Party was formed in November 1874 by those who were upset over the effects of deflation caused by the Panic of 1873 to advocate for a fiat money standard. They favored inflationary policies that would expand the money supply with silver currency and government-issued paper bills. [63] [86] [46]

Similarly disaffected by the 1873 Coinage Act, a populist coalition of silver mine owners, farmers, and debtors formed the Free Silver Movement, which advocated for unlimited coinage of silver under the belief that it would increase the price of crops and make debts easier to pay. [43]

These populist movements were countered by advocates of the gold standard, known as “gold bugs.” On January 14, 1875, gold bugs won a victory when Congress passed the Resumption Act of 1875 (also called the Specie Payment Resumption Act), which mandated that the U.S. Treasury reduce the number of greenbacks in circulation to $300 million, replace small paper currency with silver coins, and beginning on January 1, 1879, all greenbacks still in circulation would become redeemable in gold. [63] [87]

1879–1933: The gold standard

The late 19th century was marked by a series of bank failures. A small banking panic hit the United States in May 1884, when 42 banks failed, and was followed by an 18-bank failure in November 1890. In 1893 a large-scale banking panic hit, triggering a deep depression and the failure of over 500 banks. The crisis began with federal gold reserves falling to approximately $100 million from $190 million in 1890 and was fueled by customers withdrawing funds from banks and defaulting on loans. [85] [88] [45]

Thus, the 1896 presidential election featured debates about the gold standard. Republican William McKinley ran on a pro-gold standard platform while populist Democrat William Jennings Bryan opposed a gold standard. [83]

Bryan championed bimetallism and the free coinage of silver—which was widely supported by Westerners, rural farmers, and the poor, who believed an expanded currency would increase the price of their crops and make it easier for them to pay off their debt—and made opposition to the gold standard central to his campaign. His address to the Democratic National Convention became known as the “Cross of Gold speech,” in which he stated,

Upon which side shall the Democratic Party fight. Upon the side of the idle holders of idle capital, or upon the side of the struggling masses?…If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold. [42]

With his stunning imagery, designed to appeal to a popular audience, Bryan condemned the gold standard for limiting the money supply, keeping interest rates high, trapping debtors, and harming farmers and laborers. According to Bryan, these economic afflictions were the “cross” that the masses had to bear under this unfair economic system.[97]

The Republican Party, along with Eastern bankers, opposed free silver and promoted the gold standard instead, as the party’s 1896 platform made clear:

The Republican party is unreservedly for sound money. It caused the enactment of a law providing for the redemption [resumption] of specie payments in 1879. Since then every dollar has been as good as gold. We are unalterably opposed to every measure calculated to debase our currency or impair the credit of our country. We are therefore opposed to the free coinage of silver.…All of our silver and paper currency must be maintained at parity with gold.[91]

McKinley, the pro-gold standard Republican candidate, won the 1896 election, and on March 14, 1900, he signed the Gold Standard Act, officially ending the use of silver as a standard for U.S. currency and formally putting the United States on a gold standard. [92] [71]

On December 23, 1913, Pres. Woodrow Wilson signed the Federal Reserve Act into law. The Federal Reserve System was created, in part, to prevent future banking panics. The act allowed the Federal Reserve to print paper money (“Federal Reserve notes”) that could be lent to banks when the need for cash arose. At least 40 percent of the value of Federal Reserve notes in circulation had to be held in gold reserves. [71] [85] [88] [93] [41]

During World War I (1914–18), many nations were forced off gold standards, with the exception of the United States. Many later returned to gold exchange standards, in which reserves are kept in currencies other than gold that are convertible to gold, such as sterling and dollars. [39] [71]

During World War I and into the 1920s, gold flowed into the Federal Reserve from Europe as payment for U.S. imports. By August 1929 the Federal Reserve banks held $3.12 billion in gold—twice the amount that was necessary to back the Federal Reserve notes in circulation. [93]

However, 1929 marked the beginning of one of the worst American financial crises to date. On October 24 of that year, Black Thursday heralded the U.S. stock market crash, which in turn triggered the Great Depression. In response, the Federal Reserve pursued a policy of deflation, allowing the money in circulation to drop in relation to its gold reserves. Between 1930 and 1932 cumulative deflation hit 30 percent, and nearly 10,000 banks failed. By early March 1933, the Federal Reserve’s gold reserves were below the legal 40 percent limit. [39] [88] [94] [95] [40]

1933–71: The international gold exchange standard

In response to the deepening economic crisis, Pres. Franklin Delano Roosevelt declared a three-day banking holiday effective from March 6 to March 9, which suspended the ability to redeem paper money for gold. On March 9 he signed the Emergency Banking Act, giving himself emergency powers over banking transactions and gold policy.[39]

Then on April 5 he issued an executive order forbidding the “hoarding” of gold (gold jewelry and coins with numismatic value were exempt). All monetary gold coins, bullion, or gold certificates worth more than $100 were to be turned in to the government, at which time people were compensated for their gold at $20.67 per ounce. The right to own gold was not restored until 1974. [39]

On January 15, 1934, Roosevelt issued a statement to Congress arguing, “The practice of transferring gold from one individual to another or from the government to an individual within a nation is not only unnecessary, but is in every way undesirable,” and recommended that the U.S. government should take permanent legal “title to all supplies of American-owned monetary gold.” Two weeks later on January 30, Congress passed the Gold Reserve Act, which legally nationalized all U.S. gold, meaning the federal government controlled all private stores of gold. [96] [90] [38]

The next day, Roosevelt devalued the dollar from $20.67 per ounce to $35 per ounce—the price it would remain at until 1971. This devaluation was undertaken to stabilize domestic prices, and within a few years the 10.27 percent average annual inflation of 1932 had transformed into a 2.99 percent average annual inflation in 1935. In 1936 construction of the U.S. Bullion Depository at Fort Knox was completed to store the government’s gold reserves, and by December 31, 1941, it held 649.6 million ounces of gold. [96] [90] [38]

Toward the conclusion of World War II in July 1944, the Bretton Woods system was finalized by delegates from 44 countries at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire. Primarily designed by John Maynard Keynes, advisor to the British Treasury, and Harry Dexter White, chief international economist at the U.S. Treasury Department, the system was meant to establish and maintain exchange rate stability and promote economic growth. [37]

The Bretton Woods system established the International Money Fund (IMF) and the International Bank for Reconstruction and Development (now the World Bank Group). Under the international monetary system, all countries agreed to keep the value of their currency stable by not inflating or deflating their currency by more than 1 percent. The dollar became the mechanism by which this was made possible as countries bought and sold dollars to keep their own currencies stable. The United States pledged to back the dollar with gold, and any foreign holder of dollars could exchange dollars for gold at $35 per ounce. [37]

Foreign aid, foreign investment, and military spending created a surplus of U.S. dollars in the 1960s, and the country did not have enough gold to cover the dollar at $35 an ounce of gold. Pres. John F. Kennedy, followed by Pres. Lyndon B. Johnson, worked to support the dollar and the Bretton Woods system. But, by the late 1960s a large fiscal deficit had developed as the United States increased its printing of dollars to fund spending on the Vietnam War and Johnson’s “Great Society” social programs. [74] [32]

In 1965 Congress approved minting of copper- and nickel-clad coins to replace silver coins. On March 5, 1965, and in March 1968, respectively, Congress passed laws to “eliminate gold reserves against Federal Reserves deposits” and to “eliminate the gold reserve against Federal Reserve notes.” [71]

1971–present: The fiat standard

On August 7, 1971, the Joint Economic Subcommittee on International Exchange and Payments reported that the U.S. dollar was “overvalued” and urged that the dollar be devalued. As a result, Pres. Richard Nixon announced on August 15, 1971, that dollars held by foreign countries would no longer be exchangeable for gold in order to “protect the dollar from the attacks of international money speculators.” Called the “Nixon Shock,” the actions led foreign countries to redeem dollars for gold immediately. French Pres. George Pompidou sent a warship to retrieve France’s gold from the New York Federal Reserve Bank. [36] [34] [33] [32]

While the 1971 actions did not kill the Bretton Woods system immediately, the system would suffer another blow in February 1973, when the dollar was further devalued and six European Community members de facto abandoned Bretton Woods.[32]

Pres. Gerald Ford signed legislation in 1974 allowing Americans to own gold bullion again, which repealed the April 5, 1933, order against “hoarding” gold implemented by Pres. Roosevelt. Thus, when Pres. Ronald Reagan was elected in 1980, monetary conservatives saw an opening for policy change and began advocating for a return to the gold standard to fight inflation. Reagan appointed the U.S. Gold Commission to study the issue on June 22, 1981; however, the commission “oppose[d] the issue of Treasury gold-backed notes or bonds” and concluded on March 31, 1982, that “restoring a gold standard does not appear to be a fruitful method for dealing with the continuing problem of inflation.” The commission recommended that the U.S. Treasury begin production of gold bullion coins for sale to the public. On December 17, 1985, Pres. Reagan signed the Gold Bullion Act of 1985, authorizing the production of U.S. gold coins minted by the Treasury for the first time in 50 years. [39] [89] [81] [31] [30]

The debate then largely died. However, during the 2012 presidential primary race, the gold standard debate resurfaced when Republican candidate U.S. Rep. Ron Paul (R-TX) made the topic a major focus of his campaign. Paul had been a member of the 1981 Gold Commission but did not agree with the conclusions of the majority. As Paul and the minority of the commission argued,

The only way price stability can be restored here (indeed, in the world) is by making the dollar (and other national currencies) convertible into gold. Linking money to gold domestically and internationally will solve the problem of inflation, high interest rates, and budget deficits.[39]

The 2012 Republican Party platform called for a new gold commission to “investigate possible ways to set a fixed value for the dollar.” In response to the renewed debate, Federal Reserve Chairman Ben Bernanke addressed the issue of a gold standard in a 2012 lecture, arguing that

the gold standard would not be feasible for both practical reasons and policy reasons. On the practical side, it is just a simple fact there is not enough gold to meet the needs of a global gold standard and achieving that much gold would be very expensive, cost a lot of resources. But more fundamentally than that is that the world was changed.… So I understand the impulse but I think if you look at actual history, you’ll see that the gold standard didn’t work that well and it worked particularly poorly after World War I. Indeed, well I won’t go into it, there’s a good bit of evidence that the gold standard was one of the main reasons that the depression was so deep and long. And a striking fact is that countries that left the gold standard early and gave themselves flexibility on monetary policy recovered much more quickly than the countries that stayed on gold to the bitter end.[44] [69]

According to the World Gold Council, as of the end of 2024, an estimated 216,265 tonnes of gold has been mined throughout history, with about two-thirds having been mined since 1950. Almost all of that gold still exists, because the metal is virtually indestructible. If all that gold were placed in a cube, the cube would only measure about 72 feet (22 meters) on each side. About 45 percent of that gold is jewelry, 22 percent is bars and coins, 17 percent is held by central banks, and 15 percent is in other forms (percentages are rounded and may not equal 100). [27]

Although there is now no official link between the dollar and gold, the U.S. Treasury reported holding 258,6 million troy ounces(oz t) in gold bullion (worth over $10.92 billion) between the Federal Reserve and the Mint on October 31, 2025. The U.S. Mint holds about 2.8 million oz t of gold coins as “working stock” to be used in the production of official U.S. gold coins for sale to the public as numismatic collectibles and for investment purposes. The Federal Reserve held 73,829.5 oz t of gold coin.[28]

The gold standard debate enjoyed a brief resurgence in 2020 during the confirmation hearings of Judy Shelton for the Federal Reserve Board. Shelton favored a gold standard, adding credence to rumors that officials in Pres. Donald Trump’s administration were promoting a return to a gold standard. However, the debate was overshadowed by the continuing COVID-19 (coronavirus) pandemic, during which, on August 5, 2020, gold prices rose to $2,000 per ounce for the first time ever because of a pandemic-weakened dollar. Since then, the debate over the gold standard has largely been quiet. [19] [18] [17] [16]