Gold standard

Under a gold standard, a country's currency is convertible into a fixed quantity of gold, and the money supply is limited by gold reserves. The classical gold standard operated among major economies from about the 1870s to 1914. The United States was on a gold standard in various forms until 1933, when President Franklin Roosevelt ended domestic convertibility, and the Bretton Woods system tied other currencies to the dollar, which was convertible to gold for foreign governments until President Nixon ended that in 1971.

Supporters, including Austrian economists and some conservatives and libertarians such as Ron Paul, argue that gold imposes discipline on governments, limits inflation and protects savings, pointing to relative price stability over long periods. Proposals for a return to gold or to commodity-backed money appear periodically, and some states have passed laws recognizing gold and silver as legal tender.

Most economists oppose a return. They argue that the system forced rigid policies, contributed to the severity of the Great Depression as countries that left gold recovered sooner, was prone to deflation and banking panics, and limits the central bank's ability to respond to crises. Gold supply also does not match economic growth. A related question is whether the Fed should follow strict rules for monetary policy.