Will the US Return to the Gold Standard? The Pros, Cons, & Challenges Explained

In an era marked by economic uncertainty and weakening fiat currency, there’s a growing conversation: What would happen if we returned to the Gold Standard?

Could a gold-backed dollar bring back economic stability or is it better left in the past? To explore, let's understand what the Gold Standard was.

What Was the Gold Standard?

The US adopted a “de facto” Gold Standard in 1879. This monetary system came after the Coinage Act of 1873 demonetized silver, establishing gold as the sole basis for the national currency.

The Gold Standard Act of 1900 officially pegged the dollar to the value of gold, and an official price for gold was set (in this case, $20.67 for one troy ounce). The central bank held those gold reserves in order to back the currency, and paper money could technically be exchanged for a fixed amount of gold upon request.

Why Did the Gold Standard Happen?

The Gold Standard Act hadn’t come out of thin air: Many Americans distrusted banking institutions and were skeptical of the federal government holding all financial power.

Since gold was a finite resource and paper money could be duplicated endlessly, the latter had no intrinsic value. To instill confidence in the dollar, the US government needed to create something real.

After struggling during the Reconstruction Era, the Treasury finally had enough gold to back each dollar with a set amount of gold – and the Gold Standard Act helped convince millions of Americans to jump on the federal paper currency train.

When the Federal Reserve was founded in 1913, the Gold Standard was built into its framework. The law mandated that “The Fed” held at least 40% of paper currency in gold reserves. At the time, there was more than enough gold to do so comfortably, and fluctuating interest rates made it an attractive option for Americans and foreign investors to move gold into the vaults (and vice-versa).

Was the US Always on the Gold Exchange?

Aside from a brief flirtation with the Gold Exchange Standard after World War I (from 1914-1925), kind of.

In 1933–at the height of the Great Depression–FDR banned domestic gold trade and ownership. The international Gold Standard, however, allowed foreign governments and central banks to redeem US dollars for gold. This remained in place until the Bretton Woods Agreement in 1944.

Did the Gold Standard Cause the Great Depression?

While it certainly didn’t cause the Great Depression, the Gold Standard limited the Central Bank’s ability to expand the money supply. Remember how the currency had to be backed by gold reserves? Well, the Fed wasn’t doing much to measure the money supply then.

The value of US dollars was in question and an increasing number of investors were pulling physical gold out of reserves. When the New York Federal Reserve’s gold stores were drained in 1933, Roosevelt declared a week-long bank holiday and soon suspended private gold ownership. Can you imagine that?

To fight the reduction in spending, increased unemployment, and sky-high deflation, FDR removed the US from the Gold Standard and raised the price of gold to $35 per troy ounce. In response, the Fed increased the paper money supply to instigate recovery.

After abandoning the Gold Standard, the US saw a return to economic growth by the end of the decade (thanks to the increased money supply and New Deal measures).

But history often forgets about “the golden avalanche.” Gold didn’t just come from United States citizens: During Hitler’s rise to power, Europeans with money were overwhelmingly pulling their gold out and investing it in the United States. In 1934 alone, the US raised its “stock of gold from four billion to approximately seven billion overnight, but eleven billion more [were] added in just six years."

How Bretton Woods Changed the Gold Standard

By the middle of World War II, the US had accumulated the largest store of gold and facilitated the creation of the Bretton Woods System. It was unique in that only the US dollar was on this gold standard (at $35 per troy ounce). 44 allied nations’ currencies were pegged to the dollar, therefore increasing the demand for the US currency.

In a post-war world, fixed exchange rates kept international trade fairly stable and flexible. Even though currencies were fixed, if countries were facing certain difficulties, they could adjust their exchange rates with IMF approval. This was the kind of flexibility that the Gold Standard lacked – and the US dollar became the world’s dominant reserve currency.

Understandably, this post-war period was one of the most prosperous times in US history.

The End of the World(’s Gold Standard)

Remember how early American economists were suspicious about the unchecked printing of paper currency and how it led to inflation?

Well, it happened again.

The Gold Standard system ended in 1971, when the Nixon Administration pulled out of the Bretton Woods Agreement.

By the end of the 1960s, the US was running a deficit and its gold reserves were running dangerously low. There were speculations that the US would have to devalue its currency–and foreign investors started increasing their demands for dollars-for-gold.

The fixed rate of $35 per troy ounce became unrealistic and adjusting the rate would undermine the dollar’s credibility (not to mention the global monetary system tied to it). What to do, what to do?

In August 1971, Nixon went on television to introduce his surprise economic policy. By yanking the US out of the Bretton Woods Agreement, the President claimed that there would be:

• Restored confidence in the dollar
• “A new prosperity without war”
• The Fed printing more money without having to back them with gold
• Stabilization of the economy by shirking obligations of the gold-backed dollar.

Based on all of the US government’s poor financial practices throughout the post-war period, it’s hard to tell what would have happened without the Nixon Shock. However, this change reshaped the global economy, altered the function of modern financial markets, and led to significant volatility and uncertainty. As a result, most of the 1970s dealt with high inflation, multiple oil crises, food shortages, and economic stagflation.

Fun fact: While the US dollar was going through freefall, OPEC started quoting oil prices using the price of gold (not dollar). The price of gold skyrocketed and damaged the value of the dollar, causing even greater economic pressure.

The Rise of Fiat Currency

The 1970s saw a dramatic shift from the gold-backed dollar to fiat currency, an accounting unit (which wasn’t tied to any asset or commodity).

Before the Nixon Shock, the US dollar had been the anchor of the Bretton Woods system—and its convertibility to gold had helped maintain global economic stability. When it suddenly transitioned into a fiat currency, the dollar’s value was no longer tied to any physical commodity (like gold). Instead, it was tied to trust in the US government and its economy.

Decoupling the dollar from gold meant that foreign currencies were no longer pegged to either. Their currencies were now a “floating exchange rate,” determined by market forces like supply and demand.

This meant wider fluctuations in currency values.

• Floating exchange rates made international trade riskier.
• Once predictable currency values faced currency fluctuations, which could change the cost of imports and exports overnight.
• The dollar plummeted by 30%.

What Happened to the Gold Investments after the Nixon Shock?

With high inflation, oil crises, and weakening confidence in fiat currency, gold became more attractive to investors seeking stability.

This trend has continued, with gold viewed as a reliable safe-haven asset during major market volatility and crises (we’re looking at you, 2008 financial crisis and COVID-19 pandemic).

More Diversified Investments

Gold prices were no longer dictated by governments or international agreements: It was all about supply and demand. Thanks to the boom of gold futures and ETFs, there was more market access than ever.

Before 1971: Central banks tended to hold as much gold in their reserves as possible.

After 1971: Many central banks reduced their reliance on gold while diversifying their holdings (e.g., Forex, government bonds).

Investors began flocking to gold as a hedge against inflation and currency devaluation. This was the start of gold as a safe-haven asset.

Note: Most central banks still hold gold, but the role is more strategic than a direct backing of currency.

Greater Volatility

The value of gold became a much more volatile, defensive investment. Before 1971, prices had been artificially preserved, but now, they were driven by elements like speculation, global economic conditions, and central bank policies.

While gold prices were staggeringly high in 2024, many pro-Gold Standard folks argue that these “true market prices” are preferable. We’ll get to that in a bit.

Increased Prices

Under Bretton Woods, gold prices had been artificially kept at $35 per ounce. Once the precious metal was no longer tied to the US dollar, gold’s value skyrocketed to $850 within a decade.

What Countries Use the Gold Standard?

In 1971, most currencies were backed by gold. Nixon Shock forced all 44 allies into a floating currency. Since then, there are zero countries on the Gold Standard.

The Case for Returning to the Gold Standard

When it comes to the gold-backed dollar, the US has a pretty murky past. But even considering decades of past mistakes, plenty of proponents believe that shifting back to a Gold Standard is the right path forward.

• A gold standard would limit the government’s ability to print money, preventing inflation from spiraling out of control.
• Military and defense spending would be dramatically lowered, possibly preventing conflicts.
• With less fiscal wiggle room, there would be fewer opportunities for policies that devalue the dollar (like quantitative easing).
• Tying the currency to physical gold (instead of central bank policies) could ensure longer-term price stability.
• Fiat currencies aren’t backed by tangible items. A gold-backed dollar could restore both domestic and international confidence, attracting more foreign investment.
• The US dollar’s status as the world reserve currency isn’t going to last forever. There are a number of signs that its power is waning.

1. Limited Deficit Spending

Printing wild amounts of money got the US into trouble in the past. Under the Gold Standard, the government would need sufficient gold reserves to back any new money printed. Therefore, it would limit deficit spending and remove excesses that lead to recessions. In other words, the government would have to “live within its means.”

2. Stricter Government Oversight

If the government is responsible for the money supply, inflation rates, interest rates, and governing economic laws, how responsible are they, really? A Gold Standard could present fewer opportunities for “wiggle room,” requiring stricter budgets and greater oversight.

The federal government would have less ability to manipulate interest rates and expand the money supply to influence the economy. Ceasing these types of interventions could help end market distortions and financial bubbles.

3. Price Stability

Critics maintain that the Federal Reserve’s monetary policies (like printing more money during economic crises) have decreased the dollar's purchasing power over time. Supporters believe that tying the dollar to gold–a finite and tangible resource–would potentially curb devaluation and improve price stability. Like any currency, inflation will weaken the dollar’s value. Having a gold-backed currency could keep the dollar’s purchasing power at a more constant level.

Not-so-fun fact: The dollar's purchasing power decreased by 2.53% from 2023 to 2024. That's not an anomaly: that's the decades-long trend and reality.

4. Financial Stability & Confidence in the Dollar

Because they aren’t backed by a physical asset, fiat currencies are susceptible to devaluation. The US dollar’s value is based purely on trust in the government and economy.

For long-term investments, investors look for trust and predictability. If the US were backed by gold, it might enhance the currency’s reputation as a reliable store of value. This could attract more foreign investment and help solidify the U.S. dollar’s role as the world’s reserve currency.

5. Trade Advantages

A stable, gold-backed dollar could win over global trade agreements. Other nations might prefer trading in a currency that has a stable value tied to gold, rather than one subject to inflation or currency fluctuations.

6. The US Has the Most Gold Reserves

Since the US holds the most gold reserves, no adjustment can be made without US agreement. Therefore, switching to a Gold Standard would give it a natural advantage.

Similar to the Bretton Woods system, the US might be able to set the terms of the global monetary system. Sure, countries with smaller reserves would struggle to compete, but in the spirit of the Nixon Shock, the US could have serious leverage for setting trade terms.

7. Focus on Domestic Growth

If the central bank can’t artificially inflate the money supply, the US government might be forced to focus on real economic growth (rather relying on monetary policies). Economic bubbles can be caused by “easy credit,” so a gold-backed dollar system might reduce boom-and-bust cycles.

8. Protect Against Crises

Having the most gold reserves has plenty of benefits. The US would have more physical assets to rely on during times of financial distress, while smaller countries would comparatively struggle.

The Biggest Challenges of Returning to the Gold Standard

A gold-backed currency could theoretically provide greater economic stability, limit government debt, and create a more predictable monetary system. However, there are a number of steep challenges and opposing positions to consider.

1. Loss of Monetary Policy Flexibility

A gun is a tool, a weapon, that can be used for good or for evil. Less dramatically, the lever of being able to control the money supply can be a force for positive economic impact as a response to unpredictable events or downturns.

By being able to directly adjust the supply of money and interest rates, the potential severity of recessions can be reduced, as well as smoothening out peaks and valleys in economic growth for periods of longer stability.

2. Inflationary Fiat Incentivizes Spending

When money is inflationary and gradually loses its value over time, it encourages holders of that money to invest or spend rather than hoard cash. That can drive economic growth and innovation as money is incentivized to be put to work. This also helps avoid the "paradox of thrift" where excessing saving hurts economic activity.

3. Private Monetary Flexibility & Debt Management

Similar to how the Fed can influence money with their levers, the passive effects allow wages to be adjusted down without outright cuts, which workers would strongly protest.

This is due to inflation of course, but this slow erosion of value of an amount of dollars can have very positive impacts on things like debt. Since the value of $1 goes down over time, a debt burden with a low interest rate becomes easier to pay down over time.

4. Protection Against Deflation

A small inflation target can actually provide a buffer against deflation, which can trigger a dangerous cycle of falling prices, reduced spending, high saving, and economic contraction. A famous historical example of that is Japan's famous "lost decades."

5. There May Not Be Enough Gold on Earth

Sure, the US has the largest gold reserves in the world, but switching the dollar to a Gold Standard would require more gold than it currently has.

Because the United States’ GDP is in excess of $25 Trillion, there’s far more money in circulation than gold reserves could currently support. And it’s not like you can use all of the gold in reserves either: Some of it will need to remain in store.

To back all of this gold, you’d either need more physical gold–or you’d have to raise the gold price significantly.

If a world party wanted to mine more, then conflict is essentially guaranteed. By finding more gold (and thus increasing supply), another country could more directly influence the value of gold-backed currencies. But that's not the actual bad part -- humans have mined an estimated ⅔ of the earth's total gold supply already. An international race to obtain more gold stores could not only cause untold ecological destruction in the mining process, but the race would surely become armed.

When gold is out, then what? Asteroid mining? Alchemy?

Food for thought: If the price of gold was doubled, the purchasing power in dollars could increase by $20 billion.

How Could a Gold Standard Affect International Relations with the US?

If the US adopted a fixed gold-backed dollar, it might strengthen its position as the global reserve currency by stabilizing exchange rates between trade partners. However, poor execution might drive other nations to seek out alternative currencies (such as the Chinese yuan or crypto).

This matters a lot. Over the past few years, investments in the US dollar have slunk. Many central banks are diversifying away from the US dollar, pound, and euro to pick up smaller currencies like the yuan, yen, and even Canadian dollar.

Global Foreign Exchange Reserves of USD

With deepening geopolitical issues, it’s anticipated that the dollars kept in global reserves will continue its downward trajectory. There’s growing investor anxiety about the dollar’s strength and future value. Without some sort of shift, the dollar will continue to lose its economic dominance–as will the United States.

What Happens as the Dollar Loses Value?

Many nations are increasingly purchasing gold to safeguard their reserves and reduce reliance on Western financial systems. Recent geopolitical risks and potential sanctions have made this abundantly clear (the US is not bulletproof, after all).

As global demand for the US dollar declines, so will the demand for US government debt (i.e., Treasury bonds). The US may raise interest rates to attract investors, which would increase interest paid on its debt. Rising interest payments could limit the government’s ability to fund essential services, weakening the dollar and increasing the risk of a fiscal crisis.

If there’s less demand for the dollar, higher interest rates, and mounting debt, it could threaten the currency and even international financial stability. Fun times.

Predictability in Trade

With fixed exchange rates, the US and its trade partners see reduced volatility. This means that international trade agreements would see greater predictability and fewer rate fluctuations.

Less Currency Manipulation

Currency wars and manipulation can strain international relationships. Any country on a Gold Standard would struggle more to manipulate its currency for competitive advantage (like devaluation to boost exports).

Restored Confidence in the Dollar

Having a currency that’s tied to a finite resource could reduce concerns about inflation or manipulation. This would likely increase trade partners’ confidence in the US monetary system.

Support for Countries with Greater Gold Access

Nations that possess and mine gold will be at a considerable advantage over those that don't. Countries with smaller gold reserves would understandably face greater difficulties maintaining their assets, particularly during times of economic instability.

Affect Trade for Smaller Countries

If a smaller country in a Gold Standard network is less productive–or loses gold–the effects can ripple across borders. Larger countries typically are better equipped to handle economic shocks, but reducing the liquid assets of a smaller nation would reduce its output. This could have a lasting impact on international trade, especially if it possesses or produces unique goods and services.

Lead to War and Conflict

Whenever there’s a desirable, limited resource, conflict follows. Since gold is one of the most lucrative “conflict minerals,” violence and conflict tends to follow the gold production trail. Those conflicts typically increase asylum seekers, too.

Could Other Countries Return to the Gold Standard?

Theoretically, but not anytime soon. A gold-backed currency would require large reserves of gold to support money supply and maintain fixed exchange rates. Since the United States has the largest gold currency reserve, the US dollar would be the prime instigator, possibly in a Bretton Woods-style reboot.

Who Owns the Most Gold?

The US has the largest store of gold, followed by Germany, Italy, and France. The US owns nearly the same amount as these three countries combined.

Who has the Most Gold Mines?

The US may have the most gold, but we don't mine the most gold. Countries do not have control over what natural resources appear on their sovereign land, but the current lead producers of gold are as follows:

Why Have Countries Bought so Much Gold in 2024?

In 2023 and 2024, China was on a gold purchasing spree, selling off its US Treasury securities and substituting many with physical gold purchases. It’s not just China: India, Uzbekistan, Turkey, Jordan, and Poland have been snatching up large stores of gold, too.

Hint: It has a lot to do with each country’s geopolitical location.

Having a highly liquid asset can bolster the economy while shedding US dollar investments. At the moment, it’s more about diversifying investments, resisting trade wars and potential sanctions, and protecting against geopolitical events.

How the US Could Return to the Gold Standard: 12 Minimum Requirements

If the US was hoping to switch to a gold-backed economy, there would need to be a complete overhaul of the government and private sector. Every element of society–from banking to credit to the federal budget–would be rocked.

If the US happened to circle back to this system, there are at least 12 steps that pro-Gold Standard supporters recommend.

Author's Note: This is purely conjecture.

1. Stop Credit Expansion

Firstly, the Federal Reserve would have to stop expanding credit. The goal here would be ending inflation, which is necessary for a stable, gold-backed system.

2. Get the Mint Involved

Next, the government would have to freeze paper money production. The majority of Gold Standard proponents believe that gold must be introduced as cash tender. Therefore, the US Mint would have to produce gold coins or gold bills in various weights.

3. Create a Parallel Currency System

At the start, gold and paper currency would be circulated together to ensure a smoother transition and avoiding economic shock.

4. Open the Markets to Self-Stabilize

The government would need to allow the unrestricted buying, selling, importing, and exporting of gold. To allow the free market to find the fairest price, the government should not be involved directly.

5. Establish the Dollar-to-Gold Ratio

This is where consensus diverges: How do you set a new price for gold and define existing paper currency?

Some Gold Standard folks believe in a pre-inflation gold/money ratio. Others think the US should raise the gold price and let the system balance itself out. Regardless, a dollar-to-gold ratio needs to be established, and gold’s price would certainly need to be increased.

Interesting: Many pro- and anti-Gold Standard economists agree that gold prices should have been hiked a while ago.

6. Strict Fiscal Planning

The government would need to balance its budget through tax revenue and private loans. No paper currency would be printed to cover these debts and the government would not be allowed to monetize these debts either.

7. Strip Social Programs

Phasing out welfare programs (like Social Security, food benefits, and public healthcare) would be necessary to reduce government spending and close the debt gap. There would certainly be plenty of recall elections if representatives voted for such a dramatic shift.

Moving back to the Gold Standard would be simpler for substantial gold owners. For the increasing number of Americans living paycheck to paycheck, it would not.

8. Pass Currency Legislation

The Executive Branch would need to pass legislation that repealed fiat currency laws while implementing new laws that enforced gold-backed dollars.

Since the majority of economists oppose a Gold Standard–and agree that the average American wouldn’t benefit from a switch–this would be a major hurdle.

9. Increase Federal Gold Stores

The US government would need to acquire even more gold reserves to back the entire supply of dollars in circulation. Massive gold purchases would drive up global gold prices and may create a shortage.

10. Enforce Monetary and Fiscal Discipline

Strict laws would need to ensure that government spending and monetary policy remained independent. The permanent separation of government and monetary policy would have to be enacted to prevent future inflation.

Author's Note: Considering how divided US politics currently are, watching representatives try to reach consensus would be fascinating.

11. Pay Off International Debt

Any US debt held by international parties would need to be honored in full. This would be vital for maintaining confidence in the US financial system.

By the end of 2023, foreign holdings accounted for 29% of US debt…or $7.9 trillion.

12. Coordinate with Other Nations

Since many global currencies are intertwined or influenced by US monetary policy, the government would need to negotiate with other nations or risk destabilizing international exchange rates and trade relations.

Is Bitcoin the Answer to the Gold Standard?

Historically, gold was the foundation of currencies around the globe. Today, many consider Bitcoin as its modern incarnation, often being called "digital gold."

Bitcoin is the most dominant cryptocurrency, but there are others, including digital dollars pegged to the USD at a 1:1 ratio, and other projects which their own unique features. Bitcoin is considered the oldest and best form, having been in circulation with a bulletproof track record for over 15 years. Most importantly, Bitcoin has the qualities of being decentralized, mathematically controlled scarcity, and is a truly borderless store of value.

It's true that Bitcoin addresses a number of the same issues that the Gold Standard was meant to solve. So, is Bitcoin the 21st century's new gold? Let's compare gold and crypto with limited supply.

Hedge Against Inflation

Much like gold investors, crypto advocates see Bitcoin (and other decentralized assets) as a way to hedge against inflation. They’re both appealing to people who want investments that aren’t subject to constant government manipulation or overprinting.

Fixed Supply

Like gold, Bitcoin is finite. There’s only 21 million coins that will ever exist and it's projected to be fully mined in 2040. This sort of fixed supply has the same hallmarks of the Gold Standard: It’s harder to manipulate values when you can’t expand the supply.

Volatility

Cryptocurrencies tend to experience high volatility and instability, so investors should view them as high-risk, high-return speculations. The stability of Bitcoin's price isn't as rock-solid as gold or other types of assets as it's relatively young at 15 years old, but the ceiling of its price and value is a math problem depending on adoption.

If we have one or two influential nation states adopting Bitcoin en masse as a strategic reserve, there would be a race for countries around the world to stockpile the asset, realizing some of the higher projections for the price.

Gold is a tried and tested asset, holding a steady value for centuries. Based on historical data, there’s no sign that per-ounce prices are going dramatically down.

Tangibility

A major drawback of crypto is its intangibility. It’s hard to “embrace” crypto when it’s held digitally. Gold can be purchased, worn, and held, meaning its value is physically understood.

Decentralized Control

The Gold Standard forced the US government to rein in spending: They couldn’t print more money than they had in gold reserves. The same goes for Bitcoin and other limited cryptocurrencies: What you’ve got is what you’ve got.

Barriers to Entry

Bitcoin has a fairly high emotional barrier to entry: it's knocking at the door of $100k USD per coin as of November 2024, it's completely digital, and there's been an enormity of bad news and FUD for decades as it's grown & matured.

It's also a fairly new concept for humanity in general, with the majority of the population still needing to be educated on its function and value. And if you don't have access to technology, you cannot participate.

Conversely, gold is much more widely available. For example, even if you don't have access to a phone or the internet, you can own gold jewelry or other items.

In both cases of Bitcoin and gold, most large-scale ownership comes from whales in the form of very early adopters, the elite, large institutional money (ETFs, exchanges, and those carrying on balance sheet), and nation states.

With Bitcoin, 2% of holders own 95% of the available supply. If one of these whales move their supply, it can have a massive impact on the market.

Gold ownership by contrast is more evenly spread out. Jewelry makes up nearly 50% of the gold market, followed by investment capital and central bank reserves. If prices shift, it's almost always a short-term fluctuation. And because of gold's liquidity and huge global adoption, there's almost always an interested buyer.

Could Bitcoin Create a New Gold Standard System?

Gold has been the foundation of global currency for centuries. Many modern investors consider Bitcoin's decentralized, scarce, and borderless store of value as a clear successor, but it currently lacks widespread adoption for any government to embrace it as currency.

Decentralized, trustless financial systems are possible–but most governments don’t want to give up control. And while government-backed digital currencies might take inspiration from the Gold Standard and crypto markets, wouldn’t that be in direct conflict with crypto’s decentralization?

Is There Consensus on the Gold Standard?

This really depends on who you ask. Plenty of businessmen and conservative think tanks support the return to a Gold Standard. The Heritage Foundation even outlined it in Project 2024 (one chapter discusses abolishing The Fed).

As stated earlier, the majority of economists don’t believe that this shift would be beneficial to the American public. They maintain that, instead of completely changing the monetary system, a range of policy overhauls could be beneficial to the US dollar.

Most modern politicians don’t have the interest or economic motivation to undertake such a dramatic shift in monetary policy. After all, the Gold Standard has failed in the past, multiple times.

Is a Return to the Gold Standard Feasible?

While a return to the Gold Standard could offer major benefits like increased dollar stability and limited government spending, it faces significant hurdles. As the debate continues, it remains to be seen whether this historical monetary system could ever work in a modern economy.

This is a growing conversation that will undoubtedly shift over the next decade–and it’s best to be ready for it. A great place to start: Building a fractional gold store of wealth.