From 1879, America was on a fully convertible gold standard anyone could demand that the government swap their cash for gold at a fixed rate of $20.67 per ounce, which meant that every US dollar in circulation had to be backed by gold. In turn, this meant that, despite the creation of the US Federal Reserve in 1913, the money supply was dependent on the amount of gold in America'snational gold reserves.
This prevented the Fed from printing more money in the early 1930s to counteract the effects of the Great Depression. In fact, the collapse of several banks led to a rush of investors demanding gold. That drained gold reserves, reducingthe money supply.
The depression drove several countries off the gold standard, most notably Britain in 1931. By 1932 the US was one of only six gold-standard countries. This made the dollar more expensive, hitting exports.
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In March 1933, president Franklin D Roosevelt stoppedbanks from selling gold to the public, and banned private ownership of more than five ounces of gold bullion, with the Fed buying up stocks. In June, he banned gold from being used as a method of payment in private contracts. The dollar was devalued by 40% over the next year.
Despite this, the US remained on a gold standard for nearly 40 years, with convertibility still in place for foreign banks though at a rate of $35 dollars per ounce. Indeed, the Bretton Woods agreement in 1945, which fixed most major currencies to the dollar, meant there was in effect a global gold standard from the end of World War II to August 1971, when the US left the system altogether.
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
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