Gold Standard:

The term gold standard is defined as the use of gold as the standard value for the money of a country. A country is said to be using the gold standard if it will redeem any of its money in gold. The U.S. and many other Western countries adhered to the gold standard during the early 1900's with the passage of the Gold Standard Act. Today, however, gold's role in the worldwide monetary system is insignificant. Britain gave up the gold standard 1931; the US abandoned it 1971. Gold holdings are still retained because it is an internationally recognized commodity which cannot be legislated upon or manipulated by interested countries. The gold standard effectively came to an end in 1933 when President Franklin D. Roosevelt outlawed private gold ownership (except for the purposes of jewelry). The Bretton Woods System, enacted in 1946 created a system of fixed exchange rates that allowed governments to sell their gold to the United States treasury at the price of $35/ounce. The Bretton Woods system ended on August 15, 1971, when President Richard Nixon ended trading of gold at the fixed price of $35/ounce. At that point for the first time in history, formal links between the major world currencies and real commodities were severed. Thus on August 15, 1971, the world entered the first era in its history in which no circulating paper anywhere was redeemable in gold by anyone. At one point in time it was illegal for a U.S. citizen to own gold. Therefore when President Richard Nixon of U.S. closed the gold window this broke the last tie between gold and circulating currency, resulting in the modern financial system known as a floating currency system. The gold standard has not been used in any major economy since that time. Almost every country, including the United States, is on a system of fiat money.