Strong economy brings stable currency

This article was originally printed in the latest issue of Numismatic News.
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The recent pro-gold opinions published in this magazine shows often seen misconceptions that replacing fiat money with a gold standard would restore stability in the dollar. Further, that error in thinking is leading to the dangerous conclusion that we would no longer need the Federal Reserve Bank to manage the money supply. In reality, the only true foundation for a stable currency is a strong economy.

Prior to the passage of the Gold Standard Act of 1900, the U.S. had a bimetallic system, but mainly gold was traded. It essentially ended in 1933 when private ownership was outlawed (except for jewelry).

Post WWII legislation in 1946 created a system of fixed exchange rates that allowed foreign governments to sell their gold to the U.S. treasury at the price of $35 an ounce. This was also ended in 1971 when Nixon signed legislation to end the fixed price system. For the first time in history formal links to major world currencies and real commodities (such as gold) were ended. The gold standard has not been in used by and major economy since that time.

In lieu, those countries are now using a system of fiat money, defined as “money that is intrinsically useless; is used only as a medium of exchange”. The value of the money is now set by supply and demand for the money as balanced by the demand for goods and services and being able to fluctuate based on market forces.

The reasons for eliminating the gold standard are numerous, mainly because of price instability, the lack of the ability to use monetary policy when there were economic downturns, resulting major cycles of unemployment.

On the positive side the one gold standard benefit is that it can control long-term inflation. However, the benefit of having a better control of the economy and implementation of monetary policy to reduce the severe shocks of the past far outweighs its use.

It is highly unlikely that the gold standard will ever return to the United States, or any major economy of the world.

Tom Altvater has collected coins for around 50 years. He is from Germantown, Md., Now retired, he worked for the federal government as a program manager, including a stint of six years at the U.S. Mint that ended in 2002. Viewpoint is a forum for the expression of opinion on a variety of numismatic subjects. The opinions expressed here are not necessarily those of Numismatic News. To have your opinion considered for Viewpoint, write to David C. Harper, Editor, Numismatic News, 700 E. State St., Iola, WI 54990. Send e-mail to david.harper@fwmedia.com.