Money and gold
Why gold was money, how paper receipts and the gold standard worked, why it ended in 1971, and why gold is still stored today.
Transcript
For thousands of years, gold was money: it is rare, it lasts, it can be divided, and nobody can simply print it.
Carrying gold was risky, so people stored it with goldsmiths and banks, who handed back paper receipts. Those receipts began to circulate as paper money.
Under the gold standard, every note could be exchanged for a fixed amount of gold. So the money supply was limited by the gold in the vaults.
It also fixed exchange rates, because every currency was a weight of gold. After the second world war, the dollar was tied to gold, and other currencies were tied to the dollar.
But economies grew faster than the gold supply, and governments could not create money in a crisis. In 1971, the United States stopped exchanging dollars for gold.
Today money is fiat, but gold has not disappeared. Central banks still hold it as a reserve, and investors buy it as a store of value when they fear inflation or crisis.
Gold stopped being money, but it never stopped being trusted.
More in this series
1:33What is money?
From barter to fiat money: what money does, why it works, and what inflation is.
1:28How exchange rates work
The price of one currency in another: why we need it, what moves it, and who it helps or hurts.
1:31Why US rate hikes shake the world
How a Federal Reserve rate hike pulls money into the dollar and squeezes currencies, debts and growth elsewhere.