Equity 1 Group
Pushing back the frontiers of economic ignorance and restoring sound financial foundations, one family at a time.

Our Monetary System

For most of the 19th century, the monetary system of the U.S. was based on bimetallism (gold and silver).  This monetary system uses a standard economic unit of account equal to a fixed weight of gold.  A full gold standard was in effect from 1900–1933, which provided for full convertibility of currency into gold coin.

During this time, the volume of paper money in circulation was closely related to the gold supply held by the government. With the passage of the Gold Reserve Act (January 30, 1934), the country was placed on a modified gold standard.  This marked the end of a gold-based monetary system in domestic exchange.  The Gold Reserve Act required that all gold and gold certificates held by the Federal Reserve be surrendered to the Department of the Treasury.  This forced surrender of gold meant that it was now illegal for private citizens to be in possession of gold money.

Since 1937, the Department of the Treasury has maintained it gold bullion depository at Fort Knox (Kentucky).  The Gold Reserve also changed the nominal price of gold from $20.67 per troy ounce to $35.  Since the early 1970s, virtually all U.S. currency (paper and coin) is essentially fiat money (declared to be legal tender although it cannot be converted).  This is why the message “This note is legal tender for all debts, public and private” is printed on the bills in your wallet.

With the absence of gold, coins are made of copper and another element (zinc or nickel). Although it is sometimes know as “paper money,” bill currency is composed of 25 percent linen and 75 percent cotton. Ironically, currency and coin are less widely used as a means of payment than checks or debit/credit cards.

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