Hello and

welcome to Moneygirls quick and dirty tips for a richer life.

Today's topic, the gold standard.

In last week's episode, I explained that the US dollar, like most currencies throughout the world today, is a fiat currency, meaning that it's backed by faith rather than something

physical of value. But this hasn't always been the case. There was a time when the

U.S dollar was backed by something more tangible than faith, and that something was

gold. After last week's episode, a listener named Pam S emailed me with this question.

Why isn't the U.S. dollar still back? e-mailed me with this question.

Why isn't the US dollar still backed by gold and why did FDR recall all gold coins?

To get an answer to this question, let's take a quick look at the history of the gold standard.

In 1900, the United States and most of Europe adopted a monetary system based on gold.

The Gold Standard Act of 1900 made paper dollars convertible

to one and a half grams of gold. A Troy ounce of gold, which is one twelfth

of a pound, was a little over $20. In practice most people used paper dollars

because of their convenience and didn't often redeem them for gold. If you take a

close look at a US dollar bill today you'll take a close look at a U.S. dollar bill today, you'll see the words federal reserve note printed on it.

You'll also see the words,

this note is legal tender for all debts public and private.

When dollar bills were backed by gold, the words printed on bills were different.

For example, in the case of a $50 bill they read,

this is to certify that there is on deposit in the Treasury of

the United States of America $50 in gold coin payable to the bearer on demand.

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