Dollar ‘Good as Gold’

The Fund members agreed on the principle that the value of each nation’s currency would be based on its relationship to the United States dollar. The dollar, because of America’s financial and industrial strength, was the strongest currency at the time.

It was also agreed that the dollar would be acceptable as a form of reserves in any of these countries. And what would back up the paper dollars? Gold. Any nation holding dollars could turn them back to the United States and get gold for them at the established price of $35 an ounce.

Gold has always had intrinsic value. Unlike paper money, gold is always in demand for use in industry, jewelry, art and otherwise. So if one nation of the Fund began to accumulate too many dollars, it could turn them back to the United States and get gold instead. Yes, the dollar was ‘as good as gold.’

Because of this system, when an American businessman bought a machine from Germany, he knew in advance what the dollar was worth in German marks. And the German knew he could either hold on to the dollar, spend it to buy an American product, exchange it for some other currency, or turn it back and get gold. All of this facilitated world trade.

However, ten years later, in 1960, that gold surplus had disappeared! Foreign dollar holdings totaled more than the gold possessed by the United States. And by 1970, the situation had grown much worse. According to one estimate, foreigners held over 43 thousand million dollars, but the United States had only a little over 11 thousand million in gold.