Gold's Role in the Monetary System of the U.S.

For most of the 19th century, the monetary system of the U.S. was based on bimetallism (gold and silver). This monetary system uses a standard economic unit of account equal to a fixed weight of gold. A full gold standard was in effect from 1900–1933, which provided for full convertibility of currency into gold coin. During this time, the volume of paper money in circulation was closely related to the gold supply held by the government.

With the passage of the Gold Reserve Act (January 30, 1934), the country was placed on a modified gold standard. This marked the end of a gold-based monetary system in domestic exchange. The Gold Reserve Act required that all gold and gold certificates held by the Federal Reserve be surrendered to the Department of the Treasury. This forced surrender of gold meant that it was now illegal for private citizens to be in possession of gold money.



According to the Bureau of Engraving and Printing, the largest note it ever printed was the $100,000 Gold Certificate (Series 1934). These notes were printed from December 18, 1934 through January 9, 1935. They were issued by the U.S. Treasurer to Federal Reserve Banks against an equal amount of gold bullion held by the Treasury. These notes were used for transactions between Federal Reserve Banks and were not circulated to the general public.

Since 1937, the Department of the Treasury has maintained it gold bullion depository at Fort Knox (Kentucky). The Gold Reserve also changed the nominal price of gold from $20.67 per troy ounce to $35. Since the early 1970s, virtually all U.S. currency (paper and coin) is essentially fiat money (declared to be legal tender although it cannot be converted).



With the absence of gold, coins are made of copper and another element (zinc or nickel). Although it is sometimes know as "paper money," bill currency is composed of 25 percent linen and 75 percent cotton. Ironically, currency and coin are less widely used as a means of payment than checks or debit/credit cards.


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