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Adopt A Gold-Backed Dollar? This Is What Happened The Last Time The World Tried

by Ben Steil, GoldAndLiberty:

“The dollar and gold are synonymous,” Harry Dexter White, the architect of the Bretton Woods international monetary system, told Congress in 1945. “There is no likelihood that . . . the United States will, at any time, be faced with the difficulty of buying and selling gold at a fixed price freely.”

Under the Bretton Woods system, currencies were tied to the U.S. dollar at a fixed rate, and the dollar was in turn tied to gold at $35 an ounce. Today there is much nostalgia about Bretton Woods — a belief that the quarter-century from 1946 to Aug. 15, 1971 (when the system collapsed) was a golden era of monetary stability. But the reality was very different.

Although the International Monetary Fund was inaugurated in 1946, the first nine European countries to meet the requirements of its Article VIII — that their currencies be freely convertible into dollars at a fixed rate — didn’t do so until 1961. And by then, the system was already coming under enormous strain, as the U.S. — contrary to White’s assurances — was losing gold reserves.

The fundamental problem was that the United States couldn’t simultaneously keep the world adequately supplied with dollars and sustain the large gold reserves required by its gold-convertibility commitment. The logic was laid bare by economist Robert Triffin in his now-famous 1960 congressional testimony. There were, he explained, “absurdities associated with the use of national currencies as international reserves.” It constituted a “‘built-in destabilizer’ in the world monetary system.” The European dollar-convertibility pledges, far from representing the final critical step into a new monetary era, “merely return[ed] the world to the unorganized and nationalistic gold exchange standard of the late 1920s.”

When the world accumulated dollars as reserves, rather than gold, it put the United States in an impossible position. Foreigners lent the excess dollars back to the U.S. This increased U.S. short-term liabilities, which implied the U.S. should boost its gold reserves to maintain its convertibility pledge. But here’s the rub: if it did so, the global dollar “shortage” persisted; if it didn’t, the U.S. ultimately wound up hopelessly trying to guarantee more and more dollars with less and less gold. This became known as “the Triffin dilemma.”

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1 comment to Adopt A Gold-Backed Dollar? This Is What Happened The Last Time The World Tried

  • Craig Escaped Detroit

    Governments & Central Banksters always demand to keep some kind of paper fiat currency in the formula (because they can always manipulate the paper in ways that enrich themselves.)

    There is NO problem with gold and silver money. Don’t use it to back anything, but use it directly. Gold & silver COINS. No paper games.

    Of course, banks & governments would scream bloody murder about this, because it’s HONEST and LIMITED.

    TPTB will always come up with so many “studies” and “proofs” of why it’s not possible to use real metals as direct money, how such a thing would destroy economies and screw up everything.

    The more they complain, the better I like it.

    Yes, of course there is a genuine need for electronic commerce and electronic transactions, so we will always have to deal with some digital bookkeeping, but ultimately, everything should be settled in the direct exchange of the real metals as soon as possible to prevent all the “exchange systems” from becoming the source of manipulations.

    Looking at the http://www.usdebtclock.org/, with silver’s value at the bottom right section being about $900/ ounce… would make a single gram worth about $30. That is a pretty common amount of money we deal with in our daily transactions.

    There have been nations that have made coins that contain a fraction of a gram of silver. It’s not difficult. Every nation already has the coin making machines, and need only to change the mixture of metals to make coins that have $1 or less of silver in the smaller denomination of coins.

    I think, in the not too distant future, such “fractional silver” will be our common money, and gold will be used to settle the big transactions (at least until silver goes higher than gold). Real copper coins, nickel coins, or some other metals with decent “scrap value” will come into circulation when an ounce of silver is over $1000 per ounce (gotta stop thinking in “dollar terms”. OK, so when an ounce of silver is worth 500 gallons of gasoline or diesel fuel and one gram of silver is worth 16 gallons of gas.

    We’re gonna need either a fractional gram of Ag/Au, or we will need some other metals to handle the smaller values.

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