Gold Standard

In 1717, the value of the gold guinea was fixed at 21 shillings, leading to a gold-silver ratio of 15.2 in Great Britain, where gold became the preferred currency over clipped silver.

Article I, Section 10, Clause 1 of the Constitution prohibits states from making anything but gold and silver coins legal tender, reflecting the importance of precious metals in the monetary system of the United States.

From 1792 to 1834, silver served as the primary backing in the US monetary system before transitioning to a gold standard.

In 1816, Britain officially adopted gold as a standard for valuing currency, marking an important milestone in the history of monetary systems.

In 1819, England formally adopted the gold standard. This further solidified the commitment to fix the prices of domestic currencies in terms of a specified amount of gold.

The gold standard was first implemented in the United Kingdom in 1821, marking a shift from silver as the principal world monetary metal. Gold became the single reference metal to which all other forms of money were coordinated or adjusted.

In 1834, the United States began transitioning to a gold standard, marking a significant shift in its monetary system.

The Bank Charter Act of 1844 institutionalized the gold standard in Britain by establishing a ratio between gold reserves and banknotes, solidifying the country's monetary system.

The discovery of gold in California in 1848 led to a significant increase in the U.S. money supply, which in turn impacted domestic expenditures, nominal income, and the price level. This event also caused a deficit in the U.S. balance of payments and a balance-of-trade surplus for America's trading partners.

The California Gold Rush of 1849 significantly increased world gold supplies, leading to the minting of gold francs and dollars and pushing France and the United States into the gold standard with Great Britain during the 1850s.

By the 1850s, Britain and its colonies were on the gold standard while other countries were on the silver standard. France and the United States were notable for being on the bimetallic standard.

In 1866, Italy allowed the issuance of corso forzoso, which was a forced legal tender paper currency worth less than the standard gold franc in the Latin Monetary Union. This decision led to the Italian lira trading at a fluctuating discount compared to the standard gold franc.

In 1871, Germany transitioned to the Gold Standard after benefiting from reparations paid by France following the Franco-Prussian war of 1870. This decision had a significant impact on other countries' decisions to also adopt the Gold Standard.

President Ulysses S. Grant officially demonetized silver with the Coinage Act of 1873, which ended the US bimetallic standard. This event is also known as the 'Crime of 1873' and drastically decreased the money supply in the US.

In 1875, the Dutch Guilder transitioned from being backed by 9.45 grams of silver to 0.6048 grams of gold, with a ratio of 15.625.

In 1883, the Spanish peseta transitioned off the gold standard and had a floating exchange rate between the gold franc and the silver franc due to the suspension of free minting of silver. The Spanish government controlled profits from minting duros, preventing the peseta from returning to par with the gold franc.

During the Barings crisis of 1890, the Bank of England received assistance from other central banks, aiding in the maintenance of the gold standard.

The Gold Standard Act of 1900 established gold as the only metal for redeeming paper currency in the U.S. It guaranteed that the government would redeem any amount of paper money for its value in gold, simplifying transactions.

In 1913, the gold bullion standard emerged as a system where gold coins did not circulate, but central banks agreed to exchange circulating currency for gold bullion at a fixed price. This marked a shift in the implementation of the gold standard internationally.

Due to large gold outflows and the dollar to pound sterling exchange rate reaching $6.75:£1, the gold standard was temporarily suspended on July 31, 1914, when the New York Stock Exchange closed.

The British Gold Standard Act of 1925 introduced the gold bullion standard, ending the circulation of gold specie coins and selling gold bullion at a fixed price.

In 1931, Britain abandoned the gold standard, causing a significant impact on international merchants trading in pounds as their bank accounts were decimated.

In July 1931, a Central European banking crisis led Germany and Austria to suspend gold convertibility and impose exchange controls after a run on Austria's largest commercial bank.

On September 19, 1931, speculative attacks on the pound led the Bank of England to abandon the gold standard, which had unexpectedly positive effects on the economy.

By the end of 1932, the gold standard had been abandoned as a global monetary system, with countries like Czechoslovakia, Belgium, France, the Netherlands, and Switzerland also leaving the standard in the mid-1930s.

In 1933, the Gold Reserve Act suspended the gold standard for domestic purposes, revoked gold as universal legal tender for debts, and fixed the price of gold at $35 per ounce, effectively cornering the world gold market.

The joint resolution 'to assure uniform value to the coins and currencies of the United States' was signed, suspending the obligations to pay in gold, officially leading to the US leaving the Gold Standard.

Executive Order 6102 was signed to prohibit the hoarding of gold coin, gold bullion, and gold certificates.

The Gold Reserve Act was passed on January 30, 1934, nationalizing all gold in the United States and authorizing the devaluation of the gold dollar.

By 1937, not a single country remained on the full gold standard due to the collapse of the gold-exchange standard during the Great Depression of the 1930s. This marked the decline of the gold standard as the basis for international monetary systems.

In 1960, economist Milton Friedman estimated that the cost of maintaining a full gold coin standard for the United States was more than 2.5 percent of GNP. This highlights a significant negative aspect of the gold standard.

Alan Greenspan stated in 1966 that gold stands as a protector of property rights and prevents deficit spending from being a scheme for the confiscation of wealth.

In March 1968, the attempt to regulate the private market price of gold was given up. A two-tier system was introduced where central banks traded gold among themselves at a fixed price, while the private market determined its own price.

In August 1971, Richard Nixon suspended the convertibility of the US dollar to gold, marking the end of the gold standard. This decision was made due to the draining of U.S. gold reserves by other nations like France.

In October 1973, the price of gold was raised to $42.22 per troy ounce, but the devaluation was deemed insufficient. Shortly after, the dollar was allowed to float, abandoning the $42.22 par value.

On December 31st, 1974, Gerald Ford repealed Franklin D. Roosevelt's restrictions on private gold ownership. This led to investors purchasing physical gold to benefit from dollar devaluation.

In October 1976, the government officially changed the definition of the dollar, removing references to gold from statutes. This marked the shift towards a pure fiat money system.

By 1980, the price of gold had surged to almost $500/ounce from $35/ounce in 1969. This increase was a consequence of the U.S. dollar transitioning to a fiat currency after the collapse of the Bretton Woods system.

The book provides a retrospective analysis of the Classical Gold Standard from 1821 to 1931, with a focus on 'The Gold Standard and the Bank of England in the Crisis of 1847' by R. Dornbusch and J. Frenkel.

In April 2024, Zimbabwe reintroduced the gold standard with a monetary system called Zimbabwe Gold (ZiG) backed by US$400 million and 2,522 kg of gold. This move aimed to tackle inflation and restore confidence in the economy.

Gold has retained its purchasing power for more than 5,000 years, making it a reliable store of value. Central banks still hold a considerable portion of their assets in gold.