This week 48 years ago, President Nixon brought an end to the gold standard in the U.S., severing the dollar's convertibility to gold in 1971. Many argue this action has led to irreparable consequences that continue to impact the economy today, including our dollar’s dramatic decline since then. But what led to this shocking move? Learn more in today’s edition of USMR Market Insights with Coy Wells.
Why Did We Abandon the Gold Standard? – Video Transcription
Coy Wells: 00:00
This week's topic will be about what has happened since we left the gold standard, but before we begin, we have to understand how things began to change. In 1913, Congress created the Federal Reserve to stabilize gold and currency values. Before it could get up and running, World War I broke out and European countries suspended the gold standard, so they couldn't print enough money to pay for their military involvement. Unfortunately, printing money created hyperinflation after the war. Countries realized the value of trying their currency to guarantee the value of gold. For that reason, most countries returned to the modified gold standard. Once the Great Depression hit with full force, countries once again had to abandon the gold standard. When the stock market crashed in 1929, investors began trading in currencies and commodities. As the price of gold rose, people exchanged their dollars for gold. It worsened when banks began failing.
Coy Wells: 00:56
People began holding gold because they didn't trust any of the financial institutions. The Federal Reserve kept raising interests rates, it was trying to make the dollar more valuable and dissuade people from furthering depleting the U.S. gold reserves. These higher interest rates worsened the depression by making the cost of doing business more expensive. Many companies went bankrupt, creating record levels of unemployment. On March 3rd 1933, the newly elected president, Franklin D. Roosevelt, closed the banks. He was responding to a run on the gold reserves of the Federal Reserve Bank of New York. By the time the banks reopened on March 13th, they had turned in all their gold to the Federal Reserve. They could no longer redeem dollars for gold. Furthermore, no one could export gold at the same time. On April 5th, Franklin D. Roosevelt ordered Americans to turn in their gold in exchange for dollars. He did this to prohibit the hoarding of gold and the redemption of gold by other countries.
Coy Wells: 01:56
This created the gold reserves of Fort Knox and the United States soon held the world's largest gold supply in gold. It authorized Franklin D. Roosevelt to devalue the gold dollar by nearly 40%. He did this by increasing the price of gold, which had been $20.67 per ounce for a hundred years to $35 per ounce. The government's gold reserves increased in value from 4.3 billion to 7.348 billion. This effectively devalued the dollar by 60%. The depression ended in 1939, that allowed countries to go back on the modified gold standard. Then in 1944 Britain Woods agreement set the exchange value for all currencies in terms of gold, it obligated members of countries to convert foreign official holdings of their currencies into gold at their par values, gold was set at $35 per ounce. The United States held most of the world's gold. As a result, most countries simply peg the value of their currency to the dollar instead of gold.
Coy Wells: 02:58
If you'd to get more information, you can pick up U.S. Money Reserve's latest report, In Debt & Out of Time. It talks about the $184 trillion nightmare that we now have globally and how it can affect you in the long-term and solutions on how to prepare. So please click on the link below or call the number on your screen to get your copy. If you're watching from YouTube, please subscribe to our channel so you don't miss a single episode. I'm U.S. Money Reserve's Coy Wells, and as always, thank you for watching market insights.