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Is the USD Backed by Gold?
For a brief period, the U.S. dollar was backed by gold, but since 1971 that has no longer been the case.
Published January 17, 2024.
Gold has been considered the king of precious metals by cultures around the globe for millennia. In the U.S., the California Gold Rush of the 1840s became a part of national folklore, cementing gold as a valuable asset. There was a time when the U.S. dollar was backed by gold, which meant paper bills could be redeemed for an equivalent amount of gold from government treasuries. That is no longer the case.
The U.S. dollar has not been backed by gold officially since 1971, and the decoupling from the old standard took place in practice even earlier.
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The Fiat Currency System
Today, the U.S. dollar is classified as fiat money. That means it is not supported by any physical commodity, like gold or silver. Instead, it is backed solely by the authority of the issuing government and the people’s faith in it. Fiat money has intrinsic value because the government decrees it.
The fiat currency system replaced the global gold standard in the 1970s. Today, most major global currencies, like the U.S. dollar, the Euro, the Yen, or the Rupee, are forms of fiat money.
Pros
- Greater control over the economy
- Ease of use (convenience)
- Low-cost production
Cons
- Hyperinflation risks
- Protection of the economy is not foolproof
- Overabundance may create devaluation
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Gold's Role in Today's Economy
Gold remains a valuable asset despite no longer being linked to currency or considered legal tender. Its value is now regulated by supply and demand. Even though gold bullion and coins were not flexible enough to suit economic needs as a form of currency, many countries, including the U.S., maintain large gold reserves.
» Interested in trading gold? Read our breakdown of gold CFD trading
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