Era 04 · 1870 — 1971

Gold Standard

What backs it

Backed by gold reserves

Pulse cycle

4.5s

In the late 19th century most major economies agreed to peg their currencies to gold at a fixed rate. Currencies became effectively interchangeable. The arrangement imposed discipline — you couldn't print more money than you held gold — but it also made economies brittle: a gold outflow forced an immediate contraction in money supply, regardless of real-world conditions.

Events in this era

1871

Germany joins the gold standard

Using the 5 billion francs in reparations extracted from France after the Franco-Prussian War, the newly unified German Empire bought enough gold to peg the mark at a fixed rate. Chancellor Bismarck oversaw the transition, demonetizing silver in 1873. France followed in 1878, the US legally in 1879, Japan in 1897. Within a decade most of the industrial world was on gold. For the first time in history, a genuinely global monetary system existed, and cross-border capital flows became nearly frictionless until 1914.

Enabled global trade; exported Europe's recessions

Jan 1, 1879

United States resumes specie payments

On January 1, 1879, after fourteen years of irredeemable greenback paper currency, the United States Treasury resumed paying out gold for paper dollars at the pre-Civil War rate. The Resumption Act of 1875 had set the date four years in advance, giving the Treasury time to accumulate enough gold to back the outstanding paper. Resumption put the US fully on the gold standard and effectively pegged the dollar to the pound sterling and the German mark for the next half-century. It also collapsed the political space for the Greenback movement, which had advocated for paper currency expansion, and set up the populist battles over silver that culminated in William Jennings Bryan's 1896 presidential run.

US dollar pegged to gold; Greenbacks redeemable at par

1929 — 1933

The gold standard and the Great Depression

Countries on gold could not expand their money supply in response to the 1929 crash without triggering outflows. The ones that left gold first — Britain in 1931, the US in 1933 — began recovering first. The ones that stayed on longest suffered the longest.

Accelerated and deepened the Depression

Dec 23, 1913

Federal Reserve Act signed

Created the US central bank and completed the architecture of the gold-backed dollar. The Federal Reserve could issue Federal Reserve Notes (the dollar bills that still circulate) redeemable for gold at $20.67 per ounce. The final institutional piece of the pre-Depression gold standard, and the law that makes most subsequent US monetary history possible.

US dollar becomes a central-bank liability backed by gold

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