Gold standard

In plain words

Picture a cloakroom: you hand in your coat and get a ticket, and the ticket is worth something only because the coat is there. Under the gold standard, a dollar bill was such a ticket: the government promised to swap it for a fixed weight of gold. From the 1830s to 1933, apart from a long pause during and after the Civil War, an ounce of gold was worth $20.67.

Because every dollar had to be covered by gold, the government could not create money at will. Prices stayed roughly level over long stretches, but money was tight when the economy needed more, and a country that lost gold had to shrink its money supply, slump and all.

The world left gold in steps: most countries in the 1930s, and the last link, foreign governments swapping dollars for gold at $35 an ounce, ended in August 1971. Today gold trades freely, at $4,105 an ounce in Oct 2026.

Example

One level deeper

Britain was in effect on gold from the 1700s, and by the 1870s most big economies had joined: the classical gold standard. It broke down in World War I, when countries printed money to pay for the war, was patched together in the 1920s and collapsed in the Great Depression. Britain left in September 1931. The US stopped swapping dollars for gold at home in 1933 and reset the price at $35 an ounce in January 1934.

After World War II the Bretton Woods system made the dollar the anchor: other currencies were fixed to the dollar, and foreign governments could swap dollars for gold at $35. As dollars piled up abroad, there came to be more of them than the US had gold to honor. In August 1971 the US closed this “gold window”, and by 1973 the major currencies floated freely.

Most economists today agree the gold standard made the Great Depression worse: countries that left gold early recovered sooner. Its fans point to long-run price stability; its critics to the frequent slumps and bank panics of the gold era, and to a money supply that depended on gold mining.

The price of gold since 1960

Gold sat at the official $35 an ounce through the 1960s. Once the link to the dollar was cut, its price became a market price: it soared in the inflation of the 1970s, slumped for two decades and has climbed again since 2000. It was $4,105 in Oct 2026.

Why it matters

It explains how money worked for most of modern history, and how the dollar became the world’s anchor currency.

Calls to return to gold come up whenever inflation runs high; knowing why the world left helps to judge them.

Central banks still hold gold as a reserve, and many still buy it.

A common mistake