During the Civil War, the United States created a fiat system, producing a currency called “greenbacks” that were backed by the “full faith and credit” of the federal government. With the intention of financing the war, over $450 million was produced, but it resulted in an inflation rate of 80%. This led to a desire to move to a gold standard, as the belief was that the paper currency was the culprit of the nation’s high inflation rates. This motivating factor culminated with the passing of the Specie Payment Resumption Act, which would back all U.S greenbacks with gold. In March of 1933, following the drastic effects of the Great Depression on the United States economy, FDR declared a three-day banking holiday, halting bank’s ability to back money with …show more content…
Within the following 11 months, he forbade the private possession of gold, and gold became nationalized at a rate of $35.00 per ounce. This was done with the intention that paper currency would no longer be exchanged for gold, which Roosevelt believed was an unnecessary practice and was holding the economy back from recovering; his theory proved to be right, as a 5.1% deflation turned into 3.1% inflation, indicating the economy has begun to take a positive turn. In August of 1971, it was concluded that the U.S dollar was overvalued, leading to billions being taken out of the U.S economy as foreign countries changed the value of their dollars. This led to President Nixon ending the international gold exchange standard, thus making the U.S economy a fiat standard, as the nation no longer had enough gold to back up the U.S dollar. In this essay I will argue that the current fiat standard is best served the needs of a modern, large-scale market economy in the 21st century. First, the value of gold changes too often to be dependable. The United States endured several financial panics leading up to the Great Depression, and most can be contributed to the fluctuating