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Once a mainstay of the American economic system, the gold standard has seemed like a far-flung fantasy for the last few decades. Returning to the gold standard, where a nation’s currency is valued based on a fixed amount of gold, has been dismissed by many economists as not feasible in a modern economy. 

But the concept of returning to the gold standard in the United States has gained steam over the last couple of years.

A few members of Congress and even the former President of the United States, Donald Trump, have advocated for a return.

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Economist Judy Shelton has expressed strong support for returning and even called for a new Bretton Woods conference in 2019. The 1944 Bretton Woods agreement outlined the post-WW2 economic order and set the exchange value for all currencies in regard to gold. In 1976, the U.S. officially decoupled the value of the dollar from gold entirely after years of declining stockpiles and the effects of President Richard Nixon’s economic policies. 

As talked about the gold standard slowly gains steam, many wonder if it could even be possible for a nation as large and complex as the United States to return to a gold standard. 

The answer is complicated. It depends on the economic perspectives of a particular person. Keep reading to understand some of the details behind the gold standard and how it could work.

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Does The Gold Standard Actually Fix Any Problems?

Critics of the gold standard argue a return would not fix many problems, as runaway inflation has been relatively low for a few decades now, compared to what was seen in the 1970s

Others argue a return would destabilize the dollar due to the fluctuating spot price of gold, pointing towards what was seen in 2020. In 2019, gold prices once hovered around $1,450 an ounce but surged past $2,000 in August 2020 as demand rose. They claim these fluctuations could wreak havoc if gold did move drastically and argue exchange rates between modern currencies are much more stable. 

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Another issue with returning to the gold standard comes down to responses by entities like the Federal Reserve. If the United States did return, the Fed would not be able to lower interest rates to respond to the economic crisis, as the dollar’s value compared to gold would shift. It would also present an inability for the Fed to raise interest rates to counter inflation. 

Additionally, a finite monetary supply hinged on gold would limit economic growth and hamper the free flow of capital to fund businesses. If the United States was the sole country that converted to a gold standard, other nations could simply ask America to redeem dollars with gold – draining reserves very quickly. Currently, the United States does not have enough gold (at current prices) to pay off debt.  

Returning To The Gold Standard Could Still Be A Possibility 

Some proponents for returning to the gold standard argue the main issues are not of policy but of ideology. They claim a drastic shift could occur if citizens and politicians were willing to adopt a more self-reliant economic attitude and shift away from demanding massive government spending.  

They claim the purchasing power per unit of gold would be more stable than a fiat currency, and the long-term costs of reintroducing gold would actually not be as exorbitant of a cost compared to adhering to a paper money standard. 

Additionally, returning to a gold standard would limit government entities’ ability to print money and raise the national debt. Since the U.S. left the standard in 1971, the amount of circulating currency increased from $48.6 billion to over $5.2 trillion in 2020. A standard would ensure money could only be printed if there is a corresponding amount of gold. 

While the gold standard has many critics, it has several advocates other than former President Donald Trump and a few members of Congress. Former Federal Reserve Chairman Alan Greenspan argued the gold standard is “the primary global currency.” Steve Forbes said a return is needed to save the nation from a crisis worse than 2008. 

Can The U.S. Return To The Gold Standard?

The argument over if the United States can return to the gold standard largely comes down to financial ideology. A move is possible for those who believe the United States can make massive adjustments to how it spends and sees the money. However, it is not possible if one believes the Federal Reserve’s power and its ability to respond to economic crises is the best financial strategy to keep the country afloat.