Why the U.S. Left the Gold Standard: Origins, Benefits, Drawbacks (2012)

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The gold standard is supported by many followers of the Austrian School of Economics, free-market libertarians and some supply-siders. In the United States, strict constitutionalists object to the government issuing fiat currency through central banks. Some gold-standard advocates also call for a mandated end to fractional-reserve banking. Many similar alternatives have been suggested, including energy-based currencies, collections of currencies or commodities, with gold as one component. A return to the gold standard was considered by the US Gold Commission back in 1982, but found only minority support. In 2001 Malaysian Prime Minister Mahathir bin Mohamad proposed a new currency that would be used initially for international trade among Muslim nations, using the Islamic gold dinar, defined as 4.25 grams of pure (24-carat) gold. Mohamad claimed it would be a stable unit of account and a political symbol of unity between Islamic nations. This would purportedly reduce dependence on the dollar and establish a non-debt-backed currency in accord with Sharia law that prohibited the charging of interest. As of 2013 the global monetary system continued to rely on the dollar as a reserve currency. Former U.S. Federal Reserve Chairman, Alan Greenspan acknowledged he was one of "a small minority" within the central bank that had some positive view on the gold standard.[87] Greenspan once famously argued the case for returning to a 'pure' gold standard in his 1966 paper "Gold and Economic Freedom", in which he described supporters of fiat currencies as "welfare statists" intending to use monetary policy to finance deficit spending.[88] More recently he claimed that by focusing on targeting inflation "central bankers have behaved as though we were on the gold standard", rendering a return to the standard unnecessary.[89] Similarly, economists like Robert Barro argued that whilst some form of "monetary constitution" is essential for stable, depoliticized monetary policy, the form this constitution takes—for example, a gold standard, some other commodity-based standard, or a fiat currency with fixed rules for determining the quantity of money—is considerably less important.[90] Congressman Ron Paul is a long-term, high-profile advocate of a gold standard, but has also expressed support for using a standard based on a basket of commodities that better reflects the state of the economy.[91] In 2011 the Utah legislature passed a bill to accept federally issued gold and silver coins as legal tender to pay taxes.[92] As Federally issued currency, the coins were already legal tender for taxes, although the market price of their metal content currently exceeds their monetary value. Similar legislation is under consideration in other US states.[93] The bill was initiated by newly elected Republican Party legislators associated with the Tea Party movement and was driven by anxiety over the policies of President Barack Obama.[94] In 2013, the Arizona Legislature passed SB 1439, which would have made gold and silver coin a legal tender in payment of debt, but the bill was vetoed by the Governor. As of 2013, no countries use a gold standard. From 1936 until 2000 the Swiss Franc was based on a 40% gold-reserve.[96] Gold reserves are held in significant quantity by many nations as a means of defending their currency and hedging against the dollar, which forms the bulk of liquid currency reserves.[97] Both gold coins and gold bars are traded in liquid markets and serve as a private store of wealth. In 1999 the European Central Bank and 11 European national banks signed the Washington Agreement on Gold declaring that "gold will remain an important element of global monetary reserves"; the Agreement was later amended and extended. http://en.wikipedia.org/wiki/Gold_standard