Is the Dollar Backed by Gold? What Does That Even Mean?
When people buy gold, many seem to have the misconception that the US dollar is backed by gold. Well ... it used to be. The US currency, like many other currencies at the time, was backed by physical gold kept in Fort Knox and other places.
In 1933, the US abandoned the Gold standard along with many other nations - such as Italy in '34, Belgium in '35 and others during the 1930’s. Switzerland was one of the last countries to drop the gold standard - which they did in 1999.
The gold standard monetary system is a system in which the standard economic unit of account is a fixed weight of gold. Under such a gold standard, currency issuers guarantee to redeem notes, upon demand, for said amount of gold. Also, governments that employed such a fixed unit of account were able to redeem their notes to other governments in gold and share a fixed-currency relationship.
However, in today’s crazy world, the gold standard is not currently used by any government or central bank, having been replaced completely by fiat currency. Money is NOT backed by gold, or any other precious metal but, instead, is backed by faith. Money is, in other words, only as good as people believe it is - and this is scary.
By controlling the interest rate and the amount of money in circulation, together with the use of a tax monitoring system, governments can easily manipulate the economy - and you.
Since the abandonment of the gold standard, economies around the globe have shown the appearance of a healthy economy, but in reality, what has happened is there has been little or no check on inflation - resulting in a significant decreasing value of currency, such as the US dollar.
Again, what we use today is a system of fiat money. One glossary defines money as "money that is intrinsically useless and suitable only as a medium of exchange.” A more accurate definition perhaps is that money is, "an idea backed only by confidence."
A gold standard restricts the Federal Reserve from enacting policies which significantly alter the growth of the money supply, which in turn limits the inflation rate of a country. This may give you an inkling of the reasoning behind the removal of the gold standard.
Remember - “take care of your money and your money will take care of you.”