When FDR abandoned the gold standard
Exactly 84 years ago, on April 20, 1933, the United States abandoned the gold standard, separating the value of the dollar from gold. The person responsible for this was President Franklin D. Roosevelt, who had urged Congress to undertake the reform of the monetary system in January of the same year.
“For example, the free circulation of gold coins is unnecessary, leads to hoarding and tends to a possible weakening of national financial structures in an emergency,” he said. (See also: The gold standard against Fiat money)
Photo credit: The New York Times Archives
Following Roosevelt’s bold move, which he made shortly after taking office, The New York Times reported that the dollar plunged 11.5% against gold-based European currencies, as inflationary expectations pushed stocks higher. During what has been called the busiest trading day since September 1932, the NYSE recorded a total volume of 5.08 million shares. According to a paper prepared by the Federal Reserve of St. Louis, “The dollar pound rate jumped 23 cents to $ 3.85, the highest level since October 31, 1931.”
It was not President Roosevelt’s first crackdown on gold, nor the last. Many factors, both national and international, led him to take these measures. The United States was languishing under the effects of the Great Recession, and Britain had abandoned the gold standard two years earlier.
As the Federal Reserve of St. Louis pointed out, on the one hand, strong deflation and unemployment forced the Fed to pursue an expansionary monetary policy to stimulate the economy. The American people were in panic mode and were converting their deposits into foreign currency at an alarming rate, threatening a run on the banks. The number of banknotes in circulation increased by almost 116% between October 1929 and March 1933. The ratio of gold to Fed banknotes and deposits, “which stood at 81.4% a month before Britain left the gold standard, fell to 51.3% in March 1933., the lowest level since 1921.
Britain’s abandonment of the gold standard led to a devaluation of the pound, which had an impact on the competitiveness of US exports. Not only that, but “international responsibilities and the threat of gold exports have called on the Federal Reserve to tighten credit and demonstrate its commitment to the gold standard.”
Roosevelt therefore favored the internal situation over international commitments. One of his first acts as president was to declare a four-day public holiday and suspend gold exports. Within days, the Emergency Banking Law was enforced, prohibiting banks from paying for gold coins or bullion or gold certificates except under a license issued by the government.
Just two weeks before abandoning the gold standard, he issued a decree prohibiting the hoarding of gold coins, ingots or gold certificates. Individuals and businesses have been mandated to deposit them with the Federal Reserve on pain of a fine of up to $ 10,000 or jail time of up to 10 years or both. Those who gave up their gold were compensated.
(See also: The gold standard revisited)
And for that, he received the backing of some of Wall Street’s biggest players. After the embargo on gold exports, the New York Times quote JP Morgan said: “It seems clear to me that the way out of depression is to fight and defeat deflationary forces. Therefore, I consider the measures taken now to be the best possible solution under the current circumstances. ”