Gold Standard Act [March 14, 1900] - History

Gold Standard Act [March 14, 1900] - History

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An Act To define and fix the standard of value, to maintain the panty of all forms of money issued or coined by the United States, to refund the public debt, and for other purposes.

Be it enacted . ., That the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard, and it shall be the duty of the Secretary of the Treasury to maintain such parity.

SEC. 2. That United States notes, and Treasury notes issued under the Act of . .. [July 14, 1890] . ., when presented to the Treasury for redemption, shall be redeemed in gold coin of the standard fixed in the first section of this Act, and in order to secure the prompt and certain redemption of such notes as herein provided it shall be the duty of the Secretary of the Treasury to set apart in the Treasury a reserve fund of one hundred and fifty million dollars in gold coin and bullion, which fund shall be used for such redemption purposes only, and whenever and as often as any of said notes shall be redeemed from said fund it shall be the duty of the Secretary of the Treasury to use said notes so redeemed to restore and maintain such reserve fund in the manner following, to wit: First, by exchanging the notes so redeemed for any gold coin in the general fund of the Treasury; second, by accepting deposits of gold coin at the Treasury or at any subtreasury in exchange for the United States notes so redeemed; third, by procuring gold coin by the use of said notes, in accordance with the provisions of section thirty-seven hundred of the Revised Statutes of the United States. If the Secretary of the Treasury is unable to restore and maintain the gold coin in the reserve fund by the foregoing methods, and the amount of such gold coin and bullion in said fund shall at any time fall below one hundred million dollars, then it shall be his duty to restore the same to the maximum sum of one hundred and fifty million dollars by borrowing money on the credit of the United States, and for the debt thus incurred to issue and sell coupon or registered bonds of the United States, in such form as he may prescribe, in denominations of fifty dollars or any multiple thereof, bearing interest at the rate of not exceeding three per centum per annum, payable quarterly, such bonds to be payable at the pleasure of the United States after one year from the date of their issue, and to be payable, principal and interest, in gold coin of the present standard value, and to be exempt from the payment of all taxes or duties of the United States, as well as from taxation in any form by or under State, municipal, or local authority; and the gold coin received from the sale of said bonds shall first be covered into the general fund of the Treasury and then exchanged, in the manner hereinbefore provided, for an equal amount of the notes redeemed and held for exchange, and the Secretary of the Treasury may, in his discretion, use said notes in exchange for gold, or to purchase or redeem any bonds of the United States, or for any other lawful purpose the public interests may require, except that they shall not be used to meet deficiencies in the current revenues. That United States notes when redeemed in accordance with the provisions of this section shall be reissued, but shall be held in the reserve fund until exchanged for gold, as herein provided; and the gold coin and bullion in the reserve fund, together with the redeemed notes held for use as provided in this section, shall at no time exceed the maximum sum of one hundred and fifty million dollars.

SEC. 3. That nothing contained in this Act shall be construed to affect the legal-tender quality as now provided by law of the silver dollar, or of any other money coined or issued lay the United States.

SEC. 4. [Divisions of issue and redemption to be established in the Treasury Department. ]

SEC. 5. That it shall be the duty of the Secretary of the Treasury, as fast as standard silver dollars are coined under the provisions of the Acts of . [July 14, I890, and June I3, I898] . ., from bullion purchased under the Act of . [July I4, I890] . ., to retire and cancel an equal amount of Treasury notes whenever received into the Treasury, either by exchange in accordance with the provisions of this Act or in the ordinary course of business, and upon the cancellation of Treasury notes silver certificates shall be issued against the silver dollars so coined.

SEC. 6. That the Secretary of the Treasury is hereby authorized and directed to receive deposits of gold coin with the Treasurer or any assistant treasurer of the United States in sums of not less than twenty dollars, and to issue gold certificates therefor in denominations of not less than twenty dollars, and the coin so deposited shall be retained in the Treasury and held for the payment of such certificates on demand, and used for no other purpose. Such certificates shall be receivable for customs, taxes, and all public dues, and when so received may be reissued, and when held by any national banking association may be counted as a part of its lawful reserve: Provided, That whenever and so long as the gold coin held in the reserve fund in the Treasury for the redemption of United States notes and Treasury notes shall fall and remain below one hundred million dollars the authority to issue certificates as herein provided shall be suspended- And provided further, That whenever and so long as the aggregate amount of United States notes and silver certificates in the general fund of the Treasury shall exceed sixty million dollars the Secretary of the Treasury may, in his discretion, suspend the issue of the certificates herein provided for: And provided further, That of the amount of such outstanding certificates one fourth at least shall be in denominations of fifty dollars or less: And provided further, That the Secretary of the Treasury may, in his discretion, issue such certificates in denominations of ten thousand dollars, payable to order. [Sec. 5I93 of Revised Statutes repealed. 7. That hereafter silver certificates shall be issued only of denominations of ten dollars and under, except that not exceeding in the aggregate ten per centum of the total volume of said certificates, in the discretion of the Secretary of the Treasury, may be issued in denominations of twenty dollars, fifty dollars, and one hundred dollars; and silver certificates of higher denomination than ten dollars, except as herein provided, shall, whenever received at the Treasury or redeemed, be retired and canceled, and certificates of denominations of ten dollars or less shall be substituted therefore and after such substitution, in whole or in part, a like volume of United States notes of less denomination than ten dollars shall from time to time be retired and canceled, and notes of denominations of ten dollars and upward shall be reissued in substitution therefor, with like qualities and restrictions as those retired and canceled

SEC. 8. That the Secretary of the Treasury is hereby authorized to use, at his discretion, any silver bullion in the Treasury of the United States purchased under the Act of . ., for coinage into such denominations of subsidiary silver coin as may be necessary to meet the public requirements for such coin: Provided, That the amount of subsidiary silver coin outstanding shall not at any time exceed in the aggregate one hundred millions of dollars. Whenever any silver bullion purchased under the Act of . [July I4, 1899] . ., shall be used in the coinage of subsidiary silver coin, an amount of Treasury notes issued under said Act equal to the cost of the bullion contained in such coin shall be canceled and not reissued.

SEC. 9. [Uncurrent subsidiary silver coin to be recoined. I 1. That the Secretary of the Treasury is hereby authorized to receive at the Treasury any of the outstanding bonds of the United States bearing interest at five per centum per annum, payable . [February I, I904] . ., and any bonds of the United States bearing interest at four per centum per annum, payable . [July IO I907] . ., and any bonds of the United States bearing interest at three per centum per annum, payable . [August I, I908] . ., and to issue in exchange therefor an equal amount of coupon or registered bonds of the United States in such form as he may prescribe, in denominations of fifty dollars or any multiple thereof, bearing interest at the rate of two per centum per annum, payable quarterly, such bonds to be payable at the pleasure of the United States after thirty years from the date of their issue, and said bonds to be payable, principal and interest, in gold coin of the present standard value, and to be exempt from the payment of all taxes or duties of the United States, as well as from taxation in any form by or under State, municipal, or local authority: Provided, That such outstanding bonds may be received in exchange at a valuation not greater than their present worth to yield an income of two and one-quarter per centum pet annum; and in consideration of the reduction of interest effected, the Secretary of the Treasury is authorized to pay to the holders of the outstanding bonds surrendered for exchange, out of any money in the Treasury not otherwise appropriated, a sum not greater than the difference between their present worth, computed as aforesaid, and their par value ....

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SEC. 14. That the provisions of this Act are not intended to preclude the accomplishment of international bimetallism whenever conditions shall make it expedient and practicable to secure the same by concurrent action of the leading commercial nations of the world and at a ratio which shall insure permanence of relative value between gold and silver. Approved, March I4, I900.

The classical Gold Standard

The Gold Standard was a system under which nearly all countries fixed the value of their currencies in terms of a specified amount of gold, or linked their currency to that of a country which did so. Domestic currencies were freely convertible into gold at the fixed price and there was no restriction on the import or export of gold. Gold coins circulated as domestic currency alongside coins of other metals and notes, with the composition varying by country. As each currency was fixed in terms of gold, exchange rates between participating currencies were also fixed.

Central banks had two overriding monetary policy functions under the classical Gold Standard:

  1. Maintaining convertibility of fiat currency into gold at the fixed price and defending the exchange rate.
  2. Speeding up the adjustment process to a balance of payments imbalance, although this was often violated.

The classical Gold Standard existed from the 1870s to the outbreak of the First World War in 1914. In the first part of the 19th century, once the turbulence caused by the Napoleonic Wars had subsided, money consisted of either specie (gold, silver or copper coins) or of specie-backed bank issue notes. However, originally only the UK and some of its colonies were on a Gold Standard, joined by Portugal in 1854. Other countries were usually on a silver or, in some cases, a bimetallic standard.

In 1871, the newly unified Germany, benefiting from reparations paid by France following the Franco-Prussian war of 1870, took steps which essentially put it on a Gold Standard. The impact of Germany’s decision, coupled with the then economic and political dominance of the UK and the attraction of accessing London’s financial markets, was sufficient to encourage other countries to turn to gold. However, this transition to a pure Gold Standard, in some opinions, was more based on changes in the relative supply of silver and gold. Regardless, by 1900 all countries apart from China, and some Central American countries, were on a Gold Standard. This lasted until it was disrupted by the First World War. Periodic attempts to return to a pure classical Gold Standard were made during the inter-war period, but none survived past the 1930s Great Depression.

How the Gold Standard worked

Under the Gold Standard, a country’s money supply was linked to gold. The necessity of being able to convert fiat money into gold on demand strictly limited the amount of fiat money in circulation to a multiple of the central banks’ gold reserves. Most countries had legal minimum ratios of gold to notes/currency issued or other similar limits. International balance of payments differences were settled in gold. Countries with a balance of payments surplus would receive gold inflows, while countries in deficit would experience an outflow of gold.

In theory, international settlement in gold meant that the international monetary system based on the Gold Standard was self-correcting. Namely, a country running a balance of payments deficit would experience an outflow of gold, a reduction in money supply, a decline in the domestic price level, a rise in competitiveness and, therefore, a correction in the balance of payments deficit. The reverse would be true for countries with a balance of payments surplus. This was the so called ‘price-specie flow mechanism’ set out by 18th century philosopher and economist David Hume.

This was the underlying principle of how the Gold Standard operated, although in practice it was more complex. The adjustment process could be accelerated by central bank operations. The main tool was the discount rate (the rate at which the central bank would lend money to commercial banks or financial institutions) which would in turn influence market interest rates. A rise in interest rates would speed up the adjustment process through two channels. First, it would make borrowing more expensive, reducing investment spending and domestic demand, which in turn would put downward pressure on domestic prices, enhancing competitiveness and stimulating exports. Second, higher interest rates would attract money from abroad, improving the capital account of the balance of payments. A fall in interest rates would have the opposite effect. The central bank could also directly affect the amount of money in circulation by buying or selling domestic assets though this required deep financial markets and so was only done to a significant extent in the UK and, latterly, in Germany.

The use of such methods meant that any correction of an economic imbalance would be accelerated and normally it would not be necessary to wait for the point at which substantial quantities of gold needed to be transported from one country to another.

The ‘rules of the game’

The ‘rules of the game’ is a phrase attributed to Keynes (who in fact first used it in the 1920s). While the ‘rules’ were not explicitly set out, governments and central banks were implicitly expected to behave in a certain manner during the period of the classical Gold Standard. In addition to setting and maintaining a fixed gold price, freely exchanging gold with other domestic money and permitting free gold imports and exports, central banks were also expected to take steps to facilitate and accelerate the operation of the standard, as described above. It was accepted that the Gold Standard could be temporarily suspended in times of crisis, such as war, but it also was expected that it would be restored again at the same parity as soon as possible afterwards.

In practice, a number of researchers have subsequently shown [1] that central banks did not always follow the ‘rules of the game’ and that gold flows were sometimes ‘sterilised’ by offsetting their impact on domestic money supply by buying or selling domestic assets. Central banks could also affect gold flows by influencing the ‘gold points’. The gold points were the difference between the price at which gold could be purchased from a local mint or central bank and the cost of exporting it. They largely reflected the costs of financing, insuring and transporting the gold overseas. If the cost of exporting gold was lower than the exchange rate (i.e. the price that gold could be sold abroad) then it was profitable to export gold and vice versa.

A central bank could manipulate the gold points, using so-called ‘gold devices’ in order to increase or decrease the profitability of exporting gold and therefore the flow of gold. For example, a bank wishing to slow an outflow of gold could raise the cost of financing for gold exporters, increase the price at which it sold gold, refuse to sell gold completely or change the location where the gold could be picked up in order to increase transportation costs.

Nevertheless, provided such violations of the ‘rules’ were limited, provided deviations from the official parity were minor and, above all, provided any suspension was for a clear purpose and strictly temporary, the credibility of the system was not put in doubt. Bordo [2] argues that the Gold Standard was above all a ‘commitment’ system which effectively ensured that policy makers were kept honest and maintained a commitment to price stability.

One further factor which helped the maintenance of the standard was a degree of cooperation between central banks. For example, the Bank of England (during the Barings crisis of 1890 and again in 1906-7), the US Treasury (1893), and the German Reichsbank (1898) all received assistance from other central banks.

[1] Bloomfield, A., Monetary Policy Under the Gold Standard, 1880 to 1914, Federal Reserve Bank of New York, (1959) Dutton J., The Bank of England and the Rules of the Game under the International Gold Standard: New Evidence, in Bordo M. and Schwartz A., Eds, A Retrospective on the Classical Gold Standard, NBER, (1984)
[2] Bordo, M., Gold as a Commitment Mechanism: Past. Present and Future, World Gold Council Research Study no. 11, December 1995

History of Bimetallism

From 1792, when the U.S. Mint was established, until 1900, the United States was a bimetal country, with both silver and gold recognized as legal currency in fact, you could bring silver or gold to a U.S. mint and have it converted into coins. The U.S. fixed the value of silver to gold as 15:1 (1 ounce of gold was worth 15 ounces of silver this was later adjusted to 16:1).

One problem with bimetallism occurs when the face value of a coin is lower than the actual value of the metal it contains. A one-dollar silver coin, for example, might be worth $1.50 on the silver market. These value disparities resulted in a severe silver shortage as people stopped spending silver coins and opted instead to sell them or have them melted down into bullion. In 1853, this shortage of silver prompted the U.S. government to debase its silver coinage—in other words, lowering the amount of silver in the coins. This resulted in more silver coins in circulation.

While this stabilized the economy, it also moved the country towards monometallism (the use of a single metal in currency) and the Gold Standard. Silver was no longer seen as an attractive currency because the coins were not worth their face value. Then, during the Civil War, hoarding of both gold and silver prompted the United States to temporarily switch to what’s known as “fiat money.” Fiat money, which is what we use today, is money that the government declares to be legal tender, but that's not backed or convertible to a physical resource like metal. At this time, the government stopped redeeming paper money for gold or silver.

Gold Standard Act [March 14, 1900] - History

The nation moves forward with an industrial purpose, with flight, with assembly lines proving a revolution of commerce. Meanwhile, Teddy Roosevelt continues a mission to save the natural and historic treasures of the USA.

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U.S. Timeline - The 1900s

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March 14, 1900 - The Gold Standard Act is ratified, placing the United States currency on the gold standard.

November 6, 1900 - President William McKinley wins his second term as president, this time with Theodore Roosevelt in the second spot on the ticket, again defeating William J. Bryan by an Electoral Margin of 292 to 155.

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May 20, 1902 - The island of Cuba gains independence from the United States.

January 18, 1903 - The first two-way wireless communication between Europe and the United States is accomplished by Guglielmo Marconi when he transmits a message from President Theodore Roosevelt to the King of England from a telegraph station in South Wellfleet, Massachusetts.

May 23, 1903 - The first direct primary system in the United States is begun in the state of Wisconsin.

August 1, 1903 - The first cross-country automobile trip in the United States is completed with arrival in New York. The trip had begun in San Francisco on May 23.

November 8, 1904 - Theodore Roosevelt wins his first election for President after serving three years in the office due to the death of William McKinley. He defeats Democratic candidate Alton B. Parker, 336 to 140 in the Electoral College vote.

November 24, 1904 - The first successful field tractor is invented by American Benjamin Holt, using a caterpillar track to spread the weight in heavy agricultural machinery.

February 23, 1905 - Rotary Club of Businessmen is founded with the first chapter in Chicago, Illinois.

March 4, 1905 - President Theodore Roosevelt is inaugurated for his second term.

April 6, 1905 - In the ruling of Lochner vs. New York, the ten hour work day law and sixty hour work week law for bakers is overturned by the U.S. Supreme Court. Work rule laws are routinely overturned until the West Coast Hotel Company vs. Parrish case in 1937.

May 15, 1905 - The city of Las Vegas, Nevada is formed with the sale of one hundred and ten acres in the downtown area.

April 18-19, 1906 - The San Francisco earthquake occurs, estimated at 7.8 on the Richter scale. Its proximity to the epicenter of the San Andreas Fault and the subsequent fire that followed the quake and aftershocks left 478 reported deaths, although estimates in the future peg that figure at nearly 3,000. Between $350-$400 million in damages were sustained. Refugee camps were constructed at twenty-one sites throughout the city, including the Presidio, Fort Point, and Golden Gate Park.

November 9, 1906 - The first official trip abroad by a United States president occurs when Theodore Roosevelt leaves for a trip to inspect the progress in the construction of the Panama Canal.

September 7, 1907 - The RMS Lusitania, the largest ship at the time, is launched on its maiden voyage from London to New York. The ship would be sunk by a German U-boat in 1915 during World War I, costing 1,198 people their lives.

January 1, 1908 - The tradition of dropping a ball in New York's Times Square to signal the beginning of the New Year is inaugurated.

October 9, 1908 - The U.S. Bureau of Public Roads completes an initial two mile macadam surface through Cumberland Gap with the Object Lesson Road, one of the first efforts to test a hardened road.

November 3, 1908 - William Howard Taft is elected President, 321 to 162 Electoral Votes, over Democratic candidate William Jennings Bryan, who had twice before been defeated for the office by William McKinley in 1896 and 1900.

January 28, 1909 - The troops of the United States leave Cuba for the first time since the beginning of the Spanish-American War.

April 6, 1909 - Admiral Robert E. Peary, a Pennsylvania native, accompanied by four eskimos and a black man, Matthew Henson, arrives as the North Pole on their sixth attempt, establishing Camp Jesup. He had set sail for the pole nearly one year earlier on July 6, 1908.

1944 Bretton Woods Agreement

The 1944 Bretton Woods Agreement set the exchange value for all currencies in terms of gold. It obligated member countries to convert foreign official holdings of their currencies into gold at these par values.

The United States held the majority of the world's gold.   As a result, most countries simply pegged the value of their currency to the dollar instead of gold. Central banks maintained fixed exchange rates between their currencies and the dollar by buying their own country's currency in foreign exchange markets if their currency became too low relative to the dollar. If it became too high, they'd print more of their currency and sell it. It became more convenient for countries to trade when they peg to the dollar. As a result, most countries no longer needed to exchange their currency for gold, as the dollar had replaced it.

The value of the dollar subsequently increased, even though its worth in gold remained the same. This made the U.S. dollar the de facto world currency.

Gold Reserve Act of 1934

Signed by President Franklin D. Roosevelt in January 1934, the Act was the culmination of Roosevelt’s controversial gold program. Among other things, the Act transferred ownership of all monetary gold in the United States to the US Treasury and prohibited the Treasury and financial institutions from redeeming dollars for gold.

On July 26, 1933, the Columbus Dental Manufacturing Company applied to the Federal Reserve Bank of Cleveland for $10,000 in pure gold. The next day, the Bank approved the application, sending the firm twenty-nine gold bars weighing 476.92 ounces and valued at $9,867.14. In the depths of the Great Depression, why was the Cleveland Fed supplying gold to a firm that made false teeth, rather than supplying gold coins and a gold-backed currency to banks? Does the Federal Reserve supply gold to dentists today?

Answers to these questions revolve around Roosevelt’s gold program. The program, which began in 1933, first restricted the private use of gold, requiring businesses like the Columbus firm to apply to the Fed for gold bars. The Gold Reserve Act of 1934 was the culmination of this program President Roosevelt signed the Act on January 30, 1934.

Section 2 of the act transferred ownership of all monetary gold in the United States to the US Treasury. Monetary gold included all coins and bullion held by individuals and institutions, including the Federal Reserve. In return, individuals and institutions received currency at a rate of $35 per ounce of gold. This rate reduced the gold value of the dollar to 59 percent of the value set by the Gold Act of 1900, which equaled $20.67 per ounce. That rate had prevailed until the spring of 1933, when the Roosevelt administration began its campaign to devalue the dollar.

Sections 5 and 6 of the act prohibited the Treasury and financial institutions from redeeming dollars for gold, inverting the system that had prevailed in the United States since the nineteenth century. Under that system, the government converted paper currency to gold coins, whenever citizens desired to do so. Now, the government converted gold into dollars, regardless of whether citizens wanted to engage in the exchange.

Sections 3, 4, and 11 of the act regulated the use of gold within the United States. Regulations governed the use, acquisition, transportation, importing, exporting, and possession of gold. For example, monetary gold had to be held as bars. Coins were forbidden. Bars could be obtained for certain industrial uses, such as the manufacture of dental appliances, jewelry, and electronics. Gold items could be bought and sold if they weighed less than fifteen ounces, but transactions for heavier items required licenses. Violators faced stiff penalties.

Section 10 of the act established a stabilization fund of $2 billion under control of the Treasury. These funds came from the profits the government earned when it raised the price of gold. The Treasury could use the Exchange Stabilization Fund (ESF) to buy or sell gold, foreign currencies, financial securities, and other financial instruments in order to control the dollar’s value and to conduct open-market operations without the assistance (or approval) of the Federal Reserve. The Treasury could also use the ESF to transfer funds clandestinely to neutral nations and international allies this tool proved useful during World War II. 2

Section 12 of the act authorized the president to establish the gold value of the dollar by proclamation. The president did this the day after he signed the act. Then, Roosevelt explained the purpose of these actions was to increase the supply of credit, “to stabilize domestic prices and to protect the foreign commerce against the adverse effect of depreciated foreign currencies” (Roosevelt 1934).

Soon thereafter, Roosevelt sent a polite letter to Governor Eugene Black of the Federal Reserve Board, asserting that his administration’s policies did not interfere with the mission of the Federal Reserve. In rebuttal, the Washington Post (whose publisher, Eugene Meyer, had been governor of the Federal Reserve Board from September 1930 until his resignation in May 1933) wrote that Roosevelt’s letter seemed like a eulogy.

“The plain and unvarnished fact is that the Federal Reserve System of today is not the one established 20 years ago, any more than it is the system which existed a year back. The present organization has been shorn of its power to formulate an independent credit policy and it can no longer regulate the flow of funds into and out of this country, as it did when the United States was on the gold standard. The gold reserve act of 1934 not only took from the system all of its gold, but in doing so definitely deprived it of future control over gold movements, although of course that power had been lost as a result of the gold embargo and subsequent monetary manipulations. With the passage of this act, therefore, the central banking system of this country formally surrendered one of the chief privileges and duties which it had exercised prior to suspension of gold payments. … The Administration has assumed responsibility for defining our monetary policies” (Washington Post February 17, 1934, 8).

So, rather than formulating monetary policy, the Federal Reserve implemented policies devised by others, principally the Treasury. The Federal Reserve did not regain control over monetary policy until the Fed-Treasury Accord of 1951.

As an agent for the Treasury, the Federal Reserve executed Treasury policies, which included supplying dental manufacturing companies with gold to make false teeth.

Today, you might ask, do dentists still get gold from the Federal Reserve? No is the answer. The provisions of the Gold Reserve Act of 1934 applied to the stock of monetary gold in the United States at that time. The preponderance of that gold remains the property of the Treasury, although much of it physically resides in the vaults of the Federal Reserve Bank of New York.

The act’s provisions did not apply to gold in foreign countries or gold mined after the passage of the act. That gold forms the foundation for the modern gold market, which is held in the hands of individuals and firms, which is where dentists (and everyone else) buy gold today. US citizens have been able to do this freely and legally since 1974, when President Ford signed an act of Congress permitting US citizens to own and deal in gold. A few years before that, the Nixon administration had severed the dollar’s last link to gold.

Given these changes during the 1970s, a reasonable question may be: Does the Gold Reserve Act of 1934 have a legacy today? The answer is yes. As we mentioned earlier, the act established the ESF. The US Treasury has used the ESF to promote exchange rate stability and counter disorderly conditions in foreign exchange markets. It did this by buying and selling foreign currency and by providing short-term credit to foreign governments and international monetary authorities. During the financial crisis in the fall of 2008, the US Treasury used the ESF to establish a temporary insurance program for money-market mutual funds (Blinder 2013, 145-7 Humpage 2008). Operations of the ESF are normally conducted through the Federal Reserve Bank of New York, operating in its capacity as a fiscal agent for the Department of Treasury. 3


Gary Richardson is the historian of the Federal Reserve System in the research department of the Federal Reserve Bank of Richmond. Alejandro Komai is a PhD candidate in economics at the University of California, Irvine. Michael Gou is a PhD student in economics at the University of California, Irvine.

The paragraph on the exchange stabilization fund reflects the authors’ correspondence on this issue with Michael Bordo, who is a professor of economics and director of the Center for Monetary and Financial History. Professor Bordo also served on the Federal Reserve’s Centennial Advisory Committee. One of the most salient and accessible analyses of the long-run consequences of the creation of the exchange stabilization fund appears in the article by Anna Schwartz (1997), cited below.

For information on the operation of the Exchange Stabilization Fund today, see the ESF websites at the Federal Reserve Bank of New York and Department of Treasury. See also this description of the ESF written by the staff at the Federal Reserve Bank of Cleveland.


Angell, James W. “Gold, Banks, and the New Deal.” Political Science Quarterly 49, no. 4 (December 1934): 481-505.

Blinder, Alan S. After the Music Stopped: The Financial Crisis, The Response, and the Work Ahead. New York: Penguin Press, 2013.

Bordo, Michael and Anna J. Schwartz. “From the Exchange Stabilization Fund to the International Monetary Fund.” NBER Working Paper 8100, National Bureau of Economic Research, Cambridge, MA, January 2001.

Bullock, C. J. “Devaluation.” The Review of Economics and Statistics 16, no. 2 (February 15, 1934): 41-44.

Federal Reserve Bank of New York. “Exchange Stabilization Fund.” Last updated May 2007,

Humpage, Owen F. “A New Role for the Exchange Stabilization Fund.” Federal Reserve Bank of Cleveland Economic Commentary, August 2008.

Osterberg, William P. and James B. Thomson. “The Exchange Stabilization Fund: How it Works.” Federal Reserve Bank of Cleveland Economic Commentary, December 1999,

Roosevelt, Franklin D. “Proclamation 2072 - Fixing the Weight of the Gold Dollar,” January 31, 1934. Online by Gerhard Peters and John T. Woolley, The American Presidency Project.

Schwartz, Anna J. “From Obscurity to Notoriety: A Biography of the Exchange Stabilization Fund.” Journal of Money, Credit, and Banking 29, no. 2 (May 1997): 135-53.

United States Department of the Treasury. “Exchange Stabilization Fund.” Last updated December 1, 2010,

Washington Post. “The Federal Reserve System.” February 17, 1934.

Washington Post. “Gold Act’s Regulations: Treasury Rules for Handling Metal Approved by President: Heavy Penalty is Provided for Violations.” January 31, 1934.

Family History Daily - News From the Past -YOUR Genealogy Search Begins!

On the 15th of March, 1769, town-meeting day, occurred the most destructive fire with which the town had ever been visited. The following account of it is taken from the Boston Chronicle of March 20, . Read MORE.

History of the Town of Hampton, New Hampshire: From Its Settlement in 1638 to Autumn of 1892, page 215 - March 15, 1769

666 Malarial Preparation
Made in Jacksonville, FL

Found at Old Drugstore, St Augustine, Florida

1900 - March 15 – The Gold Standard Act is ratified, placing the United States currency on the gold standard.
The Gold Standard Act a Law.
Washington, March 15. - The gold standard act passed by congress, defining and fixing the standard of value, maintaining the parity of all forms of money issued or. Read MORE.

Lebanon Daily News - Lebanon, Pennsylvania - March 15, 1900

1800s Cooking Tips and Recipes

Ham Balls - Take cold-boiled or baked ham, chop fine, add as many eggs as there are persons. Read MORE.

The Willimantic Chronicle, Willimantic, Conn., October 26, 1881

1933 - Nashville Counts Ten Dead, Pruden Eight. Several Other Communities Lashed. LIST GROWS.
NASHVILLE, Tenn., Mar. 15 (AP) - The mad caprice of a tornado which lashed the Tennessee-Kentucky border last night left a toll of 35 known dead and more than 200 injured in the wreckage of homes. Read MORE.

The Kingsport Times - Tennessee - March 15, 1933

Found at Old Drugstore, St Augustine, Florida

1907 - Civil War Veteran Struck by Train
Butler, Pa., March 15. - Oliver Conklin deaf and 80 years of age, a veteran of the civil war, who had one eye destroyed at Spottsylvania Court House, was run down and killed by a Baltimore & Ohio. Read MORE.

Indiana Evening Gazette - Indiana, Pennsylvania - March 15, 1907

1888 - Fire
Another One.
Elmira, N. Y., March 10. – The explosion of a lamp in the press room of the Elmira Gazette at 8 o’clock yesterday evening, followed by the ignition and explosion of a can of benzine. Read MORE.

The Ohio Democrat - New Philadelphia, Ohio - March 15, 1888

Special to The New York Times.
Deposit, N. Y., March 14. - A disastrous fire started in the Oquaga House here at 4:20 o'clock this morning and destroyed property to the value of $50,000. The first. Read MORE.

The New York Times - New York, New York - March 15, 1903

1800s Advice and Etiquette for Ladies

Avoid making any noise in eating, even if each meal is eaten in solitary state. It is a disgusting. Read MORE.

The Ladies' Book of Etiquette, and Manual of Politeness: A Complete Handbook for the Use of the Lady in Polite Society. by Florence Hartley, January 1, 1872

1893 - EXETER MILLS BURNED. Loss $250,000-Two Hundred and Forty Hands Made Idle.
Exeter, N. H., March 15. - Fire broke out in the Exeter cotton mills about 4 a.m. It started in the basement, and burned up through the building, destroying the engine room and the older part of the. Read MORE.

Middletown Daily Press - Middletown, New York - March 15, 1893

1933 March 15 - The Dow Jones Industrial Average rises from 53.84 to 62.10. The day's gain of 15.34%, achieved during the depths of the Great Depression, remains to date as the largest 1-day percentage gain for the index.

1879 Denmark prohibits importation of cattle from the United States into that kingdom.

St Joseph Herald
Saint Joseph, Michigan

1879 At Georgetown, Mass., the son of a widow married a girl whose brother married the widow, and a child born to the first couple has an uncle and a grandfather and a grandmother and an aunt in the same persons.

St Joseph Herald
Saint Joseph, Michigan

America - Did you know? June 25, 1876 - Lt. Col. George A. Custer's regiment is wiped out by Sioux Indians under Sitting. Read MORE.

Quebec - Did you know? Around 1825, La Cuisinière Bourgeoise, was written as a guide for those employed in the service of. Read MORE.

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Made in New York, NY

The Gold Standard Throughout U.S. History

Over the course of history, Gold has remained a medium of exchange longer than nearly any other form of currency. But in today's modern world, you are much more likely to encounter government-issued paper money. To understand the connection between the two, we must define the Gold standard.

Perhaps the simplest Gold standard definition is a system in which a currency's value can be defined in terms of Gold and currency can be exchanged for Gold. Many also define the Gold standard as a system in which a nation actively controls its money supply in order to maintain a set Gold price.


The United States' complicated history with the Gold standard can be broken down into five periods:

  1. From 1792 to 1862, the dollar was backed by a bimetallic system of both Gold and Silver.
  2. This period was followed by a fiat monetary system until 1879.
  3. The nation held a full Gold standard from 1879 to 1933,
  4. A partial Gold standard followed between 1934 to 1971.
  5. Finally, from 1971 to the present day, the United States again holds a fiat monetary standard.

With the ratification of the U.S. Constitution in 1788, Congress gained the authority to develop a national currency. The Coinage Act of 1792 not only established the U.S. Mint, but also fixed the dollar to 24.75 grains of fine Gold and 371.25 grains of fine Silver. Congress instructed that the very first coins must include representations of both liberty and an eagle. Thus, the first Gold coins were minted in denominations of $10 Eagles, $5 Half Eagles and $2.50 Quarter Eagles. Silver coins followed in denominations of Silver dollars, half dollars, and quarter dollars. Each coin contained its actual designated weight and value in Gold and Silver.

Global fluctuations in the supply of Gold and Silver applied significant pressure to this system. As an abundance of Silver mined from Central and South America flooded the market, coin traders began buying Gold coins with lower-valued Silver. Later, as Gold supplies increased globally with mining operations from California to Australia, coin traders purchased Silver coins with lower-priced Gold. Congress adjusted the official Gold and Silver value of the dollar multiple times during this period. However, adjustments often came too late, after traders had already profited from taking coins out of circulation.

In desperate need of funding for the Civil War, Congress passed the Legal Tender Act in 1862. Paper currency was guaranteed only by the full faith and credit of the United States and could not be redeemed for Gold. During this time, the Union printed $450 million in paper currency and inflation rose by 80 percent. By the end of the Civil War, the national debt had reached $2.7 billion.

In response to hyperinflation, Congress moved to decrease the money supply by discontinuing the production of Silver dollars. Bank defaults and an economic depression ensued but the move successfully reined in inflation. With the hope of bringing renewed economic prosperity, public opinion swayed toward a return to the Gold standard. In 1875, Congress passed the Specie Payment Resumption Act, which ensured that by 1879, all paper currency could be redeemed for Gold.

Deflation continued with distinct winners and losers across the United States. Bankers and those with significant savings, many of whom lived in the northeastern United States, benefited from increased economic stability. Gold redemption for paper currency meant their money and holdings grew in buying power. But for farmers and laborers, namely those in the southern and western United States, lower inflation meant lower wages. They were forced to lower the prices they charged for goods and services, and their debts became increasingly difficult to pay off. Farmers struggled to afford the mortgages on their land.

Those struggling under deflation and members of the Democratic Party grew in political power and called for an expansion of Silver currency, which would have increased inflation and provided immediate financial relief to many lower-income Americans. Meanwhile, Republicans promised strict adherence to a Gold standard as a mode of ensuring long-term economic growth and stability. Republican President William McKinley prevailed and further cemented the Gold standard by completely discontinuing the use of Silver as part of the dollar&rsquos valuation.

The Gold standard further evolved with the creation of the Federal Reserve System in 1913. This allowed the Federal Reserve to print paper currency while maintaining that 40% of the currency&rsquos value to be reserved in Gold. While this temporarily strengthened the nation&rsquos financial system, it could not protect against the Stock Market Crash of 1929 and the Great Depression that followed.

In 1933, President Franklin D. Roosevelt used executive authority to make it illegal for citizens to privately hold Gold outside of jewelry. All Gold coins and bullion were ordered to be turned into the government for compensation at $20.67 per ounce. By 1934, a new Gold price of $35 per ounce was set and guaranteed indefinitely. Private citizens could no longer redeem paper currency for Gold. Buying Gold for investment purposes was forbidden. It could only be used in transactions with foreign governments. A national stockpile of Gold would eventually be stored at Fort Knox in Kentucky.

The Federal Reserve was mandated to maintain stability according to the set Gold price. During this time, American paper currency provided a reliable standard for international trade and investment. In 1944, President Roosevelt worked with leaders across the globe to create the Bretton Woods system in which nations agreed to restrict inflation to no more than 1%. The Gold price remained set at $35 per ounce in the United States until 1971.

In 1971, as the Gold stockpile at Fort Knox dwindled due to international transactions, President Richard Nixon announced that foreign countries could no longer redeem dollars for Gold. Moving forward, paper currency was ensured only by the full faith and credit of the United States and a fully fiat monetary system was adopted.

Demand for federal funds led to double-digit inflation into the 1980s. Some recommended a return to the Gold standard to rein in inflation. The Federal Reserve, however, gained support from President Ronald Reagan in its efforts to reduce the money supply and thereby reduce inflation without being restrained by the Gold price. In 1985, the U.S. Treasury began selling Gold coins to the public for the first time in more than 50 years.

As of 2019, no countries in the world are known to hold to a Gold standard. Returning to a Gold standard in the United States, however, is a frequent topic of political debate, even as experts struggle to define Gold standard in the modern world.

The main argument in support of returning to a Gold standard is its potential to tamp down inflation. This is because the money supply would be restricted by a largely static global Gold supply. Adopting the Gold standard would likely reduce government spending and debt because the government would not have the ability to simply print more money to fund its actions. Some experts believe this would drastically reduce needless spending in all areas of the government, ranging from the military to social programs. They also believe this would ensure balanced budgets, promote saving and set the stage for long-term economic growth and prosperity.

Despite its potential benefits, advocates have struggled to agree on a feasible plan for returning to the Gold standard nor have they determined a consistent Gold standard definition. Some define the Gold standard as a system where Gold prices can fluctuate according to the open market. Others believe Gold prices would need to be set artificially low or artificially high by the Federal Reserve in order for the Gold standard to be re-adopted nationally. In today&rsquos global economy, the adoption of the Gold standard would require cooperation not only from all sectors of government but also both political parties and a number of international governments.

Many criticize the Gold standard because it does not empower the Federal Reserve to easily increase the money supply during recessions, times of war or other emergency situations. For this reason, the Gold standard is often deemed outdated and inflexible when compared to a sophisticated technologically advanced and research-based Federal Reserve.

The Federal Reserve, for example, is largely credited with leading recovery efforts and restoring the country to low unemployment following the Great Recession beginning in 2007. Some experts also believe the Gold supply and Gold price are not as stable and reliable as some profess them to be. For example, the current Gold price fluctuates daily and has increased dramatically in recent years, notably during the Great Recession. Opponents also point to historical examples of how the Gold standard did not guard against the Great Depression or several bank failures.

Gold Standard Act [March 14, 1900] - History

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The gold prices used in this table and chart are supplied by FastMarkets. Where the gold price is presented in currencies other than the US dollar, it is converted into the local currency unit using the foreign exchange rate at the time (or as close to as possible).
Currency Mid price
Price and performance data

President McKinley signs Gold Standard Act, March 14, 1900

On this day in 1900, President William McKinley signed the Gold Standard Act, which established gold as the sole basis for redeeming paper currency. The act halted the practice of bimetallism, which had allowed silver to also serve as a monetary standard. It set the value of gold at $20.67 an ounce and valued the dollar at 25.8 grains of gold.

In the run-up to passage of the act, the nation went through a decades-long epic political battle over the relative value of gold and silver — a battle that tested whether one of those precious metals should be preferred over the other in the U.S. monetary system. Introduction of paper currency during the Civil War had complicated this debate because it promised to redeem the money in either gold or silver upon demand.

In the latter half of the 19th century, the populist movement sought to inflate farm prices through the wider use of paper currency. It called for using silver, which was more plentiful than gold, as backing for the currency. A high point of the movement was the “Cross of Gold” speech by William Jennings Bryan at the 1896 Democratic National Convention. McKinley defeated Bryan in the November election.

In 1933, President Franklin D. Roosevelt changed the value of gold to $35 an ounce. The Gold Reserve Act of 1934 withdrew gold from circulation as a further effort to combat the effects of the Great Depression.

After World War II, members of the International Monetary Fund were required to maintain their currencies at a set parity against the dollar, thereby tying much of the world to a dollar standard that was in turn tied to a gold standard. With inflation soaring, President Richard Nixon in 1971 closed the “gold window,” refusing henceforth to let foreign governments exchange their dollars for gold.


Watch the video: The History of Paper Money - The Gold Standard - Extra History - #6 (July 2022).


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