ECONOMICS
FINANCIAL MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The government backed the currency with cotton
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The government permitted state-chartered banks to issue currency
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The government established the First Bank of the United States
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The government adopted the gold standard
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Detailed explanation-1: -The gold standard is a monetary system where a country’s currency or paper money has a value directly linked to gold. With the gold standard, countries agreed to convert paper money into a fixed amount of gold. A country that uses the gold standard sets a fixed price for gold and buys and sells gold at that price.
Detailed explanation-2: -The United States, though formally on a bimetallic (gold and silver) standard, switched to gold de facto in 1834 and de jure in 1900 when Congress passed the Gold Standard Act. In 1834, the United States fixed the price of gold at $20.67 per ounce, where it remained until 1933.
Detailed explanation-3: -Under the gold standard, a country’s money supply was tied to gold. Fiat currency-or paper money-like cash, could be converted into gold on demand. This naturally limited the supply of currency in circulation since it had to stay within a certain ratio to the supply of gold.
Detailed explanation-4: -Fiat money started to predominate during the 20th century. Since President Richard Nixon’s decision to suspend US dollar convertibility to gold in 1971, a system of national fiat currencies has been used globally. Fiat money can be: Any money that is not backed by a commodity.