What Supports US Currency?


In ancient human settlements, the denizens used different items to represent exchange value---among them, shells, livestock and precious metals. Of these, precious metals (chiefly gold and silver) have endured as a means of establishing value. However, in the United States, currency is no longer supported exclusively by precious metals. Instead, in the 21st century, American currency supports itself.

The Bi-Metallic Standard

  • Until 1834, currency in the United States was supported by a bi-metallic standard of gold and silver. While gold was more valuable by the ounce, there was a great deal of silver currency in circulation. The U.S. Coinage Act of 1834 was designed to encourage the deposit of more gold into the mint. However, the actual result was the disappearance of much of the existing silver from circulating currency. The further result was that the United States abandoned its bi-metallic standard for supporting its currency.

The Gold Standard

  • The gold standard was designed to stabilize the value of U.S. currency. The value of currency was set according to a fixed exchange: The U.S. Mint was ordered to hold a reserve of gold sufficient to support the amount of currency in circulation at the agreed rate of exchange. It has been claimed that nations such as the United States and France, which adhered to the gold standard throughout the Depression of the 1930s, suffered longer and more severe financial downturns because of the inability to create more liquidity with their currency. With less money in circulation, unemployment rose and remained high throughout the Depression.

The Cross of Gold

  • In 1896, in the midst of financial panic, Democratic presidential candidate William Jennings Bryan gave what is widely recognized as one of the most famous speeches in American history. Bryan wrote his "Cross of Gold" speech to persuade the free coinage of silver at a ratio of silver to gold of 16 to 1. This move would have increased the amount of money in circulation, which Bryan argued was sorely needed by farmers who were both cash poor and burdened by debt. While the speech itself was eloquent and powerful, the measure failed. The gold standard remained in place in the U.S. well into the 20th century.

Flat Money

  • The Bretton Woods Agreement of 1944 was signed by 44 allied nations, including the U.S. The agreement established a system of convertible currencies, fixed exchange rates, and free trade. The International Monetary Fund (IMF) was also established as a result of this agreement. However, in 1971, the agreement broke down as a run on U.S. dollars prompted the American government to suspend the convertibility of the dollar to gold. The result was a system of floating exchange rates. The United States adopted a policy of "flat money," with its currency serving as banknotes declared by the government as legal tender to purchase goods and settle debts. The notes themselves are not redeemable and have no intrinsic economic value.

Reserve Currency

  • While the gold standard was in effect, the United States dollar overtook the British Pound Sterling as the world's reserve currency. Reserve currency is held by different governments as a means of enabling ready exchange of currency on the world market. The U.S. dollar remains the reserve currency; however, in the early 21st century, and in response to the worldwide financial crisis which began in 2008, there have been calls for a replacement of the US dollar as the world's reserve currency. Named alternatives include the Chinese yuan and the Euro, the currency of the European Union.


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