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By Jacquie Foote On Jan. 31, 1934, after gold coins,…
September 5, 2013 | No Comments

By Jacquie Foote On Jan. 31, 1934, after gold coins, gold bullion and gold certificates (debit currency printed before 1933) were turned in thanks to…

By Jacquie Foote

On Jan. 31, 1934, after gold coins, gold bullion and gold certificates (debit currency printed before 1933) were turned in thanks to President Franklin D. Roosevelts declaration of a national emergency, the American people received Federal Reserve notes redeemable in silver. Then, the day after the Gold Reserve Act was passed giving the Federal Reserve title to all the gold that had been collected, Stat. 31 changed the price of gold from $20.67 per ounce to $35 per ounce. The next day, the president proclaimed (48 Stat. 1730) that the dollar was to be fixed at 15 and 5/21 grains of standard gold and was to be maintained at this level in perpetuity. (This is still the definition of the dollar in the United States code.)

But why did the president tinker with the currency?

President Franklin Roosevelt called in the public’s gold supply as part of a radical effort to rebuild the economy during the Great Depression. But then in 1944, representatives of the major economies of the free world decided that the U.S. dollar would be the de facto currency of the globe … would replace gold, sort of. The dollar would still be locked at an exchange value to gold of $35 an ounce. Other world currencies, instead of having their own tie to gold, would fix their value to the dollar and wouldn’t be allowed to change their exchange rates without special permission from this new International Monetary Fund. This postwar agreement gave other countries the right to exchange their stashes of dollars for gold. (Thus, there came into being a dual monetary system: a gold standard for foreigners and Federal Reserve notes (redeemable in silver) for Americans.)

Naturally, some of the central banks of Europe began turning in the American dollars they held for gold. By the early 1970s, this policy, although actually rarely acted upon, was recognizable as an increasing danger. Foreign banks held an amount of dollars equal to many, many times the amount of gold the United States held.

One nation converting American currency into gold was France. (They converted billions.) It is said that France hoped other countries would follow suit and force the United States to get its financial house in order. Although no other nations followed Frances lead, on Aug. 15, 1971, President Richard Nixon severed the tie between gold and national currencies. Nobody could exchange dollars for gold anymore. From then on, the number of dollars needed to buy an ounce of gold would, like any other commodity, be determined by the market. Currencies would be measured against each other. (As one economist put it … like untethered balloons carried on a breeze.)

To map events out more clearly, from 1914 to 1973, American currency went through the following erosion:

From 1914 to 1933, every Federal Reserve note was redeemable in gold and silver.

Between 1933 and 1963, all Federal Reserve notes promised to pay (or be redeemed) in lawful money, which meant silver. Then, the wording on the Federal Reserve notes began to be changed to somewhat obscure language. (This should have given Americans a warning that the government was planning a greater change.)

In 1965, President Lyndon Johnson authorized the treasury to begin issuing debased sandwich dimes and quarters with little or no intrinsic value, and the quantity of silver in fifty-cent pieces was reduced to 40 percent.

On June 24, 1968, President Johnson issued a proclamation that from that moment on Federal Reserve silver certificates were merely fiat legal tender and could not be redeemed in silver.

On Dec. 31, 1970, President Richard Nixon authorized the treasury to issue debased sandwich dollar and half dollar coins.

By August 1971, many of the European countries had collected so many billions of dollars (foreign aid, money spent by the U.S. military abroad, etc.) that European banks had begun to get nervous about redeeming their money in gold. A threatened run on the gold in the U.S. Treasury resulted in American gold no longer being available for exchange for dollars. This resulted in collapse of the dollar on the world market. (Since then the dollar, no longer being redeemable in precious metal and therefore having no intrinsic value, has fluctuated on the world market like any other commodity.)

In 1973, the U.S. dollar was officially devalued, changing the price of gold from $35 per ounce to $42.23 per ounce.

On March 16, 1973, Congress set the American dollar completely afloat with nothing to back it up but the declaration of the government that it was legal tender, or fiat currency.

The world market immediately reflected serious erosion in the value of the American dollar. To buy an ounce of the gold, it took not $42.23 but $100, and then $200. Eventually it required $800 to buy an ounce of gold. The worth of the dollar has continued to bounce up and down since.

For information on the events at the Geauga County Historical Society’s Burton Century Village Museum, call 440-834-1492 or visit

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