This article was originally printed in the latest issue of Numismatic News.
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I don’t see any reason for trying to back the dollar with gold as the government tried to do for many years prior to 1968.
The primary reason for backing the dollar with something was to assure that there would be a limit to the number of dollars that could be printed, thereby inflation would be contained. It was a reasonable theory but it didn’t work out that way.
The problem with dollar backing, (especially with gold and/or silver) is that unless the U.S. government controls most of the world’s gold supply and can keep the price rather constant, a gold backed currency will still fail to keep inflation in check.
In 1949, the U.S. had a record 701,600,000 ounces of gold, or roughly 70 percent of the free world’s gold supply at that time. It also had over 2 billion ounces of silver sitting in vaults with an adequate coinage supply circulating. In less than 20 years we lost almost 70 percent of our gold and most of our silver reserves.
Much of it was due to allowing foreigners to convert eroding dollars into gold and speculators hoarding silver causing a big demand for coin production, which drained our silver reserves until the Coinage Act of 1965 was implimented. Prices on almost everything else rose over the years, yet the bull-headed U.S. government insisted that gold was only worth $35 an ounce and silver $1.29 an ounce, no less, and certainly no more. By the mid-1960s, gold and silver were looking like bargains compared to many other commodities, goods and services compared to prices of the 1940s.
With the loss of so much gold and with the amount of gold mined worldwide since 1949, I’d estimate that today the USA Treasury reserves may contain 15-20 percent of the total world gold supply, a far cry from its 1949 heyday. It’s pretty hard to control dollar backing by gold when we have so little. Even if we priced gold at $10,000 an ounce there’s still not enough to back up the money we have in circulation. So, I say it’s a futile effort.
There still should be some other ways to keep the dollar from eroding too much versus other currencies, but that’s a discussion for another Numismatic News poll.
This Viewpoint was written by Stan Kijek, a hobbyist from Aurora, Ill.
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