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The gold standard
1821–1971, in stages· Concept
Fact, law or dataA rule, statute, definition or measured number.
Under the gold standard, a country promised to exchange its paper money for a fixed weight of gold on demand.
See it on the Money & Finance map →How it works
Britain adopted it formally in 1821; Germany, the US and others followed between the 1870s and 1900. The dollar was fixed at $20.67 per ounce. Because notes had to be redeemable, the money supply was tied to gold reserves, which kept long-run prices stable but caused painful deflations and limited crisis response. It broke down in World War I, was rebuilt, then abandoned in the 1930s. The dollar's last link ended in 1971.
Why it matters
Its rules shaped a century of trade and finance. Countries that left gold early recovered faster from the Great Depression, a key lesson for modern central banking.
Facts, rules and data
Mint and treasury records; Barry Eichengreen's Golden Fetters (1992) linked gold to the Depression. In a 2012 Chicago Booth poll, no surveyed economist said returning to gold would improve outcomes.
Debates and risks
A minority, including some Austrian-school economists and politicians, still argue for gold or other hard-money backing; most economists see it as unworkable.
Inside this (2)
Connections (5)
▸The gold standard was replaced by Fiat money: currency backed by law and trust, not metalFact, law or data
The connection
As economies and government spending grew, gold-backed promises became too tight to keep. The US ended domestic gold convertibility in 1933, and in 1971 Nixon closed the last window, for foreign governments. With no metal link left, the dollar and other currencies became pure fiat money.
When and why
Britain left gold in 1931, the US cut domestic gold ties in 1933, and the Bretton Woods link ended on August 15, 1971.
How we know
Official acts: Executive Order 6102, the Gold Reserve Act, Nixon's 1971 address and the 1976 Jamaica Accords, which formally ended gold's monetary role.
Debates and risks
Whether the switch was inevitable or a policy choice, and how much it contributed to the 1970s inflation, are debated.
▸Bimetallism and the 1896 'Cross of Gold' fight lost out to The gold standardFact, law or data
The connection
Bimetallism kept breaking down because fixed gold-silver ratios drifted from market prices, and one metal would vanish. The US dropped the silver dollar in 1873, Bryan's free-silver campaign lost in 1896, and the Gold Standard Act of 1900 made gold the sole standard.
When and why
United States, 1873–1900; also Europe, where Germany's switch to gold in 1871–73 pushed others to follow.
How we know
The Coinage Act of 1873, the 1896 election returns and the Gold Standard Act of March 1900 are public records.
Debates and risks
Whether keeping silver would have eased the 1873–96 deflation, as Friedman argued, or caused instability, is still debated.
▸FDR's gold order and dollar devaluation (1933–34) loosened the US tie to The gold standardFact, law or data
The connection
By taking in private gold and raising its price to $35 an ounce, FDR ended gold coins as everyday money in the US. The dollar stayed tied to gold only for foreign governments and central banks, a halfway house that lasted until 1971.
When and why
Washington, April 1933 to January 1934, by executive order and then the Gold Reserve Act.
How we know
The order and statute texts; Treasury records show the gold moving from the Federal Reserve to the Treasury.
Debates and risks
Economists still weigh how much the break with gold, versus other New Deal policies, drove the 1933–37 recovery.
▸The gold standard spread deflation during The 1929 crash and the Great DepressionMainstream view
The connection
Under gold rules, a country losing gold had to raise rates and shrink its money supply. As gold flowed to the US and France in 1928–32, others tightened, and the US itself raised rates in 1931 to defend the dollar. Shrinking money supplies carried falling prices and bank failures from country to country.
When and why
Worldwide, 1928–1936. Britain left gold in September 1931, the US in 1933, and France and the rest of the 'gold bloc' in 1936.
How solid is the link?
Barry Eichengreen's 'Golden Fetters' (1992) and Bernanke's research show that countries leaving gold earlier recovered sooner, a pattern most economic historians accept.
Debates and risks
Whether gold itself caused the slump, or the way central banks ran it, especially US and French gold hoarding, is debated.
▸The gold standard was revived in modified form by Bretton Woods agreement (1944)Fact, law or data
The connection
Bretton Woods kept gold as the anchor, but at one remove: the US promised foreign central banks gold at $35 an ounce, and other currencies pegged to the dollar rather than to gold. Private citizens could not redeem, and Americans could not legally hold gold bullion from 1933 to 1974. Economists call this a 'gold-exchange standard'.
When and why
Designed at Bretton Woods, New Hampshire, in July 1944; the $35 price dated from FDR's 1934 devaluation. It worked fully from 1958 to 1971.
How we know
The IMF Articles of Agreement set each currency's par value in gold or 1944 dollars, and the Treasury recorded its gold sales to foreign central banks.
Debates and risks
Whether any gold-linked system could keep pace with growing world trade, given gold's slow supply growth, is still argued; economist Robert Triffin warned of this in 1960.