Back to the Gold Standard?

The international monetary crisis brought on by the failure of the U.S. to regulate the insurance, investment, and hedge fund industries, has spilled over to impact all the countries of the world. President Obama has asked the G-20 countries for international cooperation in creating new world monetary and financial rules and pledging money to the International Monetary Fund to support rescue and recovery of countries whose economic systems are in free-fall.

Some countries and some economists are now recommending a return to the Gold Standard as a solution to control risk in the future. The gold standard is a monetary system in which the unit of currency is a fixed weight of gold. Therefore, the price of gold sets the value for the currency of the nation.

For most of the 19th-century, the United States had a bimetallic system (silver and gold), but traded primarily with gold. The gold standard became the official base for currency in 1900 with the passage of the Gold Standard Act.

In 1933, President Franklin D. Roosevelt nationalized privately owned gold and abolished gold payment contracts. From 1945 to 1971, the U.S. operated under the Bretton Woods system, which created a fixed exchange rate that allowed governments to sell their gold to the U.S. treasury at the price of $35/ounce.

On August 15, 1971, President Richard M. Nixon ended the gold standard when he announced that the U.S. would no longer exchange currency for gold. This new economic policy formally severed the link between major world currencies and real commodities.

Nixon's announcement drew a mixed reaction. Many economists applauded the change as a way to boost international trade and stop speculative attacks against the dollar; and others, such as the International Monetary Fund, thought that the gold-determined standard was best for international currency.

History reveals many similar changes as the result of the evolution of the monetary and banking system over the centuries. One of the most dramatic was the evolution of paper money backed by gold that provided greater flexibility in trade within and among countries.

Assign students to study the reasons for the movement away from gold-backed dollars and the reasons why. Students should write a report of at least 150 words (or a PowerPoint of seven slides) that cites at least three resources and addresses the following essential questions for critical thinking (you can add or substitute others):

• Why did President Nixon favor unlinking gold from the dollar?
• What advantages did this decision provide for the U.S. and other countries?
• Why was gold used to back the dollar prior to Nixon's decision?
• What are the advantages of a gold standard?
• What are the disadvantages of a gold standard?
• What is your opinion on reinstating the gold standard today and why?

Click the Topics tab > Nixon Era (c. 1969 - 1974) > Nixon Abandons the Gold Standard

Use our custom ProQuest models for written and PowerPoint-style reports.