The Gold Standard is a system by which the value of the currency is defined in terms of gold for which the currency can be exchanged.
When the United States was on the gold standard, the currency could be taken into any bank and be exchanged for the equivalent value of gold. The $100 dollar currency was stamped with ” Gold Certificate ” and at the bottom of the bills was the phrase “One hundred dollars in Gold”. Beneath that was “Payable to the bearer on demand as authorized by law”. The country had enough gold in Fort Knox, and other facilities, to be able to exchange it for the face value of the paper currency that it had issued….in the United States and overseas.
When did the United Stated come off the Gold Standard?
It actually happened in two pieces.
The first piece happened on June 5, 1933 when President Franklin D. Roosevelt took the United States off of the gold standard. FDR took the citizens of the United States citizens off the gold standard. That is to say, US citizens could no longer walk into a bank and convert their dollar bills into gold. Other countries, however, could exchange their debt with United States for gold.
The second piece happened on August 15, 1971, when, after consulting the Federal Reserve Chairman and the treasury secretary among others, President Nixon announced that the United States dollar would no longer be convertible into gold for any debt that the United States owed to anyone.
This marked the end of the gold standard and opened the door for the financial crisis that we are now facing.