June 5, 1933, the United States went off the gold standard, a monetary
system in which currency is backed by gold, when Congress enacted a
joint resolution nullifying the right of creditors to demand payment in
gold. The United States had been on a gold standard since 1879, except
for an embargo on gold exports during World War I, but bank failures
during the Great Depression of the 1930s frightened the public into
hoarding gold, making the policy untenable.
after taking office in March 1933, Roosevelt declared a nationwide bank
moratorium in order to prevent a run on the banks by consumers lacking
confidence in the economy. He also forbade banks to pay out gold or to
export it. According to Keynesian economic theory, one of the best ways
to fight off an economic downturn is to inflate the money supply. And
increasing the amount of gold held by the Federal Reserve would in turn
increase its power to inflate the money supply. Facing similar
pressures, Britain had dropped the gold standard in 1931, and Roosevelt
had taken note.
On April 5, 1933, Roosevelt ordered all gold coins and gold
certificates in denominations of more than $100 turned in for other
money. It required all persons to deliver all gold coin, gold bullion
and gold certificates owned by them to the Federal Reserve by May 1 for
the set price of $20.67 per ounce. By May 10, the government had taken
in $300 million of gold coin and $470 million of gold certificates. Two
months later, a joint resolution of Congress abrogated the gold clauses
in many public and private obligations that required the debtor to repay
the creditor in gold dollars of the same weight and fineness as those
borrowed. In 1934, the government price of gold was increased to $35 per
ounce, effectively increasing the gold on the Federal Reserve’s balance
sheets by 69 percent. This increase in assets allowed the Federal
Reserve to further inflate the money supply.
The government held
the $35 per ounce price until August 15, 1971, when President Richard
Nixon announced that the United States would no longer convert dollars
to gold at a fixed value, thus completely abandoning the gold standard.
In 1974, President Gerald Ford signed legislation that permitted
Americans again to own gold bullion.