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  • Print publication year: 2015
  • Online publication date: October 2015

6 - The Gold Standard as an Alternative Monetary Regime

Summary

Revived enthusiasm in some corners of U.S. politics for a return to the gold standard as a monetary system has renewed debate over the fitness of precious metals as a medium of exchange, highlighting the significance that these commodities have played at times in the global economy beyond their physical value. The Republican Party's 2012 platform suggested that the United States consider a return to a gold standard. Although it did not mention the standard by name, the statement noted that President Reagan, “shortly after his inauguration, established a commission to consider the feasibility of a metallic basis for U.S. currency.” It called for a similar taskforce in 2012 to “investigate possible ways to set a fixed value for the dollar.” The proposal hearkens back to the pan-Atlantic classical gold standard era that existed in the decades prior to World War I. Then, the leading industrial economies, as well as many smaller agrarian ones, defined the value of their currencies in terms of a specified amount of gold. Paper currency as well as other forms of money, such as bank deposits, could then be converted into gold at will (and vice versa) at the set price.

The gold standard as a monetary system has seen various iterations over the course of U.S. history. The last official vestige of the gold standard in the United States vanished in 1976, when the legal statute defining the dollar in terms of gold was eliminated. The Nixon administration had effectively put the nail in the coffin five years earlier by closing the so-called gold window, announcing that it would no longer freely convert dollars for bullion at the official exchange rate. Now, several decades later, enthusiasm for ditching fiat currency for commodity-backed money has begun to seep back into the conservative mainstream. “The international gold standard shimmers from the past like the memory of a lost paradise,” one historian has written of generational interest in gold-backed money. It “[embodies] all the nostalgia of the Victorian and Edwardian eras – stability, harmony, respectability.”

Yet the wisdom of returning gold to a position of privilege within the U.S. or global monetary system is controversial. Top American economists oppose the idea.