Only 50 years ago our country’s currency used to operate by a different set of rules called the “Gold Standard.” The Gold standard means that a currency, such as the Dollar, is backed up by a hard commodity – in this case gold. Now, contrary to popular belief, being on the gold standard didn’t mean that every dollar in circulation was backed by a dollar’s worth of gold in reserves. In the United States, our gold standard could also have been known as the 40% Rule. The 40% Rule was simply this: that there needed to be 40% in gold reserves for whatever dollar amount was being used in circulation.
For example, if you lived in the 1950s and were walking around Brooklyn, NY with $100 in your pocket, somewhere there was $40 worth of pure gold in reserves to “back” that $100 note up. So not every single dollar was insured, but 40% was always maintained as the economy grew.
Why aren’t we using it anymore?
There are two main reasons why the U.S. moved away from and eventually abandoned the gold standard. First, shortly after the Great Depression, in 1933 then President Franklin Delano Roosevelt cut the dollar’s ties with gold. Interest rates at the time were very high in order to deter people from cashing in their deposits and subsequently depleting the gold supply. High interest rates made is hard for individuals and businesses to borrow, however. So by cutting off the dollar from the gold standard, Roosevelt could then dump more money into the economy and lower interest rates.
After this, the United States still allowed foreign countries to exchange dollars for gold, but that all changed in 1971 when President Nixon ended the practice to stop foreigners from eating into the country’s gold reserves.
What would happen if we went back to it?
The Gold Standard used to be a common way countries around the world used to ensure their currency’s stability. It helped mitigate overspending and inflation. For various reasons, over time this standard has been phased out. From a practical standpoint, adhering to the gold standard can hinder strong economic growth in today’s world. The reason for this is that the world economy grows by 2-3% each year, about a 1.5-2 trillion dollars. The amount of gold mined each year worldwide is only 2500 metric tons or $128 billion.
As you can see, this is a large shortfall if trying to adhere to the gold standard. Going back would see our economy and many others around the world stop growing at their current rate, meaning less production, trade, job growth, and wealth distribution. Since breaking free from the gold standard, we’ve made it almost impossible to go back.
You can still Get Cash for Gold
Although the dollars in your pocket may not be backed by the yellow stuff, gold as a commodity has only seen its value rise over the last decade. If you’re trying to cash in on old gold jewelry, gold watches, or coins for extra cash – there’s no time like the present. Gold Unlimited’s cash for gold program offers you top dollar for your gold items. Come in and see how much you could walk out with.
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:Sources:
http://openmarkets.cmegroup.com/4510/what-would-a-return-to-the-gold-standard-mean
http://en.wikipedia.org/wiki/Gross_world_product
http://mentalfloss.com/article/12715/why-did-us-abandon-gold-standard
http://www.dailyfinance.com/2012/08/30/gold-standard-return-how-it-affects-you/