When gold was first discovered at Sutter’s Ranch in 1848, it inaugurated the Gold Rush to California. That movement helped unify western America. Then in 1861, Treasury Secretary Salmon Chase printed the first U.S. paper currency. As a rare metal, valued since ancient times, The Gold Standard Act established gold as the only metal for redeeming paper currency. It set the value of gold at $20.67 an ounce.
According to Investopedia, “The gold standard is a monetary system where a country’s currency or paper money has a value directly linked to gold. With the gold standard, countries agreed to convert paper money into a fixed amount of gold. A country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price. That fixed price is used to determine the value of the currency. For example, if the U.S. sets the price of gold at $500 an ounce, the value of the dollar would be 1/500th of an ounce of gold.”
While the gold standard is not currently used by any government (Britain stopped using the gold standard in 1931 and the U.S. followed suit in 1933, amidst the Great Depression, and abandoned the remains of the system in 1971 in favor of fiat currency), there is recent debate as to whether a return to the gold standard would be prudent, given the current economic conditions.
While many are in favor of a return the gold standard, Fed Chairman Powell weighed in on the matter in testimony today, soundly rejecting the idea.
“You’ve assigned us the job of two direct, real economy objectives: maximum employment, stable prices. If you assigned us [to]stabilize the dollar price of gold, monetary policy could do that, but the other things would fluctuate and we wouldn’t care,” Powell said from Capitol Hill. “We wouldn’t care if unemployment went up or down. That wouldn’t be our job anymore.”