Frn Vs. Gold Essay

2389 words - 10 pages



ABSTRACT:
The final paper and presentation for which this abstract is being written will discuss the differences between the USD, or “Federal Reserve note”, as money, and the gold standard which was once a critical part of this. It will show the history of gold as money. The next part will be the reasons why the gold standard was abandoned, the steps which the USA took to get off the gold standard, and why this may not be the best long term move.
The paper will also have information concerning the convertibility of the USD to gold before Richard Nixon closed the “gold window” in 1974. The information will show the position of the USD as reserve currency, and reasons why ...view middle of the document...

d. 50: Romans began issuing a gold coin called the Aureus.
The “gold standard” used in the world of monetary affairs is defined as “a system of fixed exchange rates in which the value of currencies was fixed relative to the value of gold and gold was used as the primary reserve asset” (Colander, 2013). For most of this country's history, the dollar was exchangeable into gold or silver. "Sound" money was the kind that rang when you dropped it on a counter.
For a long time, the rate of exchange was an ounce of gold for $20.67. Following the Roosevelt devaluation of 1933, the rate of exchange became an ounce of gold for $35. After 1933, only foreign governments and central banks were privileged to swap unwanted paper for gold, and most of these official institutions refrained from asking. Since the USA was the only superpower who could help against the Russians if needed, it was not advisable to make that superpower angry.
The US engaged in so much monetary expansion, which is an inflation of the money supply, after WW2 it lost much of its value and flooded Europe with so-called Euro-dollars. France finally started demanding gold for most of their paper dollars, which peaked with De Gaulle’s famous press conference on Feb. 4, 1965 where he described the U.S. as having an "exorbitant privilege" as the world’s reserve currency, which allowed us to pay our debts with money created out of thin air!   De Gaulle said: “There can be no other criterion, no other standard, than gold. Gold that never changes, that can be shaped into ingots, bars, coins . . . that has no nationality and that is eternally and universally accepted as the ultimate fiduciary value par excellence” (N.A., The end of the Bretton Woods System (1972–81), 2011). 
France started redeeming their paper dollars to gold, but Nixon soon refused to remit gold to any nation because we were running out. Nixon then broke the Bretton Woods Treaty on Aug. 15, 1971, setting the dollar "afloat" with no ability to redeem it in gold. Within a few years, all nations had done the same, including conservative Switzerland. 
A fiat currency had become the world’s reserve currency once the USD had lost its ability to be redeemed for gold. The word fiat means: face value. The government can now print money from thin air and not need to justify the printing.
The most accurate term used to describe the paper currency (dollar bills) circulated in the United States is Federal Reserve Notes. These are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand. This term is often confused with Federal Reserve Bank Notes, which were issued and redeemable only by each individual member bank, but phased out in the mid-1930s.
Prior to 1971, any Federal Reserve Note issued was theoretically backed by an equivalent amount of gold held by the U.S....

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