Glimpse of Yesteryear
By Jacquie Foote If you look at U.S. paper currency today, you will notice it is not backed by silver or gold. Yep, it is…
By Jacquie Foote
If you look at U.S. paper currency today, you will notice it is not backed by silver or gold. Yep, it is fiat currency and is worth whatever the federal government says it is worth.
It is the kind of currency our Founders most mistrusted.
So, how did we get to using it?
Well, a lot of things happened between 1878 when Congress passed legislation retying the U.S. dollar to the gold standard and now.
Briefly, in 1910, the Department of the Treasury’s Bureau of Engraving and Printing assumed all currency production functions, including engraving, printing, and processing.
After the 1893 and 1907 financial panics, the Federal Reserve Act of 1913 was passed, creating the Federal Reserve System as the nation’s central bank to regulate the flow of money and credit. This was a measure to promote economic stability and growth.
The system was authorized to issue Federal Reserve Notes, now the only U.S. currency produced and 99 percent of all currency in circulation. The notes issued before 1933 were still debit currency, not fiat currency, so these Federal Reserve notes were issued with a promise to redeem them in gold on demand.
In 1929, the currency was reduced in size by 25 percent and standardized with uniform portraits on the faces and emblems and monuments on the backs.
Then, in 1933, the United States abandoned the gold standard. The sequence of events was:
1. On April 5, 1933, one month after his inauguration, President Franklin D. Roosevelt declared a national emergency and ordered all gold coins, gold bullion and gold certificates to be turned in to the Federal Reserve banks by May 1.
This order applied only to the currency held by people residing in the United States. It did not apply to anyone living abroad.
So, within the United States, only those who had special gold collections or needed the gold for industrial or professional use were allowed to retain quantities of the yellow metal.
2. As gold coins, gold bullion and gold certificates (debit currency printed before 1933) were turned in, the American people received Federal Reserve notes redeemable in silver.
These were still debit currency, but not tied to gold.
3. On May 22, 1933, Congress enacted a law (48 Stat. 31) declaring all coin and currencies then in circulation to be legal tender, dollar for dollar, as if they were gold.
It also empowered the president to reduce the gold content of the dollar up to 50 percent. This didnt mean much to Americans who had already given up their pre-1933 dollars, but applied to foreigners living abroad and to foreign governments.
4. On June 5, 1933, Congress enacted a joint resolution (48 Stat. 112) that all gold clauses in contracts were outlawed and no one could legally demand gold in payment for any obligation due him.
Finally, on Jan. 30, 1934, the Gold Reserve Act was passed, giving the Federal Reserve title to all the gold which had been collected. This act also changed the price of gold from $20.67 per ounce to $35 per ounce, which meant all of the silver certificates the people had recently received for their gold now lost 40 percent of their value.
The next day the president proclaimed (48 Stat. 1730) 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, of course, meant more to foreigners abroad and foreign governments than to most Americans.
But why? And what next?
For information on the events at the Geauga County Historical Society’s Burton Century Village Museum, call 440-834-1492 or visit geauga
historical.org.
