(Mike Maharrey, Tenth Amendment Center) At one time, the U.S. monetary system was backed by gold. Now it’s not backed by anything.
But most Americans don’t realize this. In fact, nearly a third of respondents to a recent survey believe the U.S. dollar is still backed by gold. Only 7 percent of the people polled got the answer right – the dollar isn’t actually backed by anything.
Meanwhile, 29.3 percent said the dollar was backed by gold, 4.1 percent said it was backed by oil, 5.8 percent said it was backed by bonds and 23.6 percent confessed that they simply didn’t know.
Thirty percent of those polled answered that the dollar is backed by the U.S. government. While technically correct, that’s a distinction without a difference. When you strip away the semantics, this still means it’s not backed by anything.
The dollar is what is known as a fiat currency. That means it is not backed by a physical commodity such as gold or silver. Fiat currencies derive their value from the fact that the issuing governments say they have value. They sustain their value because the government maintains monopoly power over money – dictating that only its fiat currency can serve as “legal tender.”
Currency in the United States used to be backed by gold. You could exchange your dollars for a fixed weight of metal. But under Pres. Franklin D. Roosevelt in the 1930s, the government began to move away from gold-backed currency. In 1971, Pres. Nixon severed the tie altogether.
Because gold or silver-backed money poses problems for governments. They cannot easily inflate the money supply. There always has to be a sufficient amount of metal to back the currency in circulation.