The US went off the gold standard in 1971, and according to wiki, no countries back up their currency with precious metal anymore.
As I understand it, before 1971, the gold standard meant something. There physically was a 1-ounce bar of gold in Fort Knox for every 35 one-dollar bills printed by the goverment.(Am I wrong?)
But nowadays currencies of all nations are backed by, well, nothing. Except blind faith.
This particular piece of green paper in my hand is worth $20 of bacon because I believe it, the cashier at the supermarket believes it, the farmer who raised the pig believes it,the trader who bought the pork belly futures believes it, the bank who lent the capital believes it, etc.
Gold is still a valuable metal, of course, and Uncle Sam still owns a lot of it (although not nearly enough to back up the value of every piece of paper currency in circulation). There’s no safer place for it than in Fort Knox - during WW2, the original Declaration of Independence and Constitution were sent there for safekeeping. The U.S. Treasury also still mints gold coins; some of that gold may pass through Fort Knox from time to time, but I don’t know that for sure.
Of course the gold standard was just as much a matter of “blind faith”: the belief that a lump or disc of shiny yellow metal (of marginal real utility) was worth $20 worth of bacon (tasty and nutritious*).
*Well, except for the whole nitrites and saturated fats business.
I think that you’re incorrect. Federal Reserve notes printed after 1933 were no longer backed by gold. Originally, $1 notes were printed with series dates of 1934, 1935, 1957. These were “blue seal” silver certificates. They were backed by silver bullion in the possession of the government. There were also silver certificates printed in denominations of $5 and $10. Silver certificates were redeemed for silver until 1968. After that, you could still spend them, but not redeem them for metal.
Also printed were United States Notes, “red seal” banknotes(also called Legal Tender Notes) which were backed by Government securities(this is my memory). They were issued in denominations of $2/$5/$100. I believed they were issued until about 1968, at which time they were declared still legal tender but were no longer printed or backed by government securities.
“Green seal” Federal Reserve Notes in $1 denomination weren’t printed until 1963, and have been continuously since then. They have never been backed by anything but good faith. (I’m currently taking any you want to send me, if you’re lost faith in them. )
The real purpose of Fort Knox is to secure the remaining Immortal Mutant Gold Eating Conquistadors. They’re surrounded by gold in case they escape their restraints. That way they won’t wander off the base before the army (it is an army base) can defeat and recapture them.
Could some of it be used to get us out of our current mess? I understand that releasing a few tons of gold on the market would devalue gold, but, again, what is it there for?
I don’t know about American banknotes but British ones up until around the 70s carried the legend, “I promise to pay the bearer on demand the sum of …”. I have a feeling that it had been meaningless for some time before they finally stopped printing the promise, but originally all such notes would presumably have been redeemed by the Bank of England for the equivalent sum in gold. I always wanted to do just that and demand that they honour their pledge, just never got round to it!
Way to be subtle, guys! Criminal gangs should have no confusion there.
Well, perhaps a very large and well-equipped criminal gang.
An interesting tidbit is that the same article also states that more gold is stored at the Federal Reserve in New York than in Fort Knox. It’s just not all ours.
Are new gold bars being produced and then placed with the ones already in Fort Knox? How old are the oldest gold bars in Fort Knox?
How often are gold bars taken out of Fort Knox?
That shiny yellow metal has been considered valuable since the dawn of civilization by all civilizations. It is a stretch to consider the belief that it still holds value to be “blind faith”.
On the same note, it is a stretch to think that the U.S. Government will dissolve in our lifetimes and make our FRNs worthless as well. But even if we were on the gold standard, if the government were to get into trouble, couldn’t they just as easily say, “Sorry, we have no gold for your money” so it would be, in effect, just like FRNs.
So you are right, but not for the reasons you said. My post wasn’t in vain, and I will retire to the Econ forum to study more…
British banknotes still do carry this promise. This PDF file from the Bank of England has an image of the current £20 note on which the promise can be seen.
I can’t see the promise-to-pay language in the link, but it probably doesn’t matter much. It’s a promise by the issuing bank to redeem the note in an equal value of the bank’s assets:
Older Federal Reserve notes did carry the promise to pay until sometime in the 1950s. I once received such an old $20 bill in change, and was sorry to have to spend it. It wasn’t worth anything extra anyway, but it was still interesting.
samclem, until 1971, weren’t FRNs required to be backed partially by the gold reserve? Twenty-five percent was the figure in 1960, IIRC. Of course I understand that’s not the same as convertibility–yet they were convertible to gold as well, at least for foreign holders.
Even today, the Fort Knox gold, or the certificates representing them, are book entries on the asset side of the FR system’s balance sheet. FRNs being liabilities of the same, one can argue that an infinitesimally small percentage of the nation’s currency continues to be backed by gold.
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