States Consider Resurrecting the Gold Standard

Friday, 15 Apr 2011 12:24 PM

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Utah will allow gold and silver coins minted by the federal government to be used as legal tender starting in May. Other states may follow suit as declining faith in U.S monetary policy, coupled with rising inflation rates, are fueling talk to bring back the gold standard.

The gold standard, a system under which the dollar is pegged against a certain weight of gold, lasted until the Great Depression.

reagan200getty.jpg
Ronald Reagan
(Getty photo)
Later, President Richard Nixon abolished the conversion of dollars to gold at a fixed rate in 1971, thus letting the dollar float in a system that we have today.

Under the gold standard, the Federal Reserve can print money based on the value of gold it has, a proposal studied under President Ronald Reagan in the early 1980s to fight inflation.

The commission that studied it rejected it, except for two people, one of which being Ron Paul, today a Texas Republican representative and Tea Party bigwig.

For now, however, Utah is seen just as a test lab.

"These actions by state legislatures are mostly symbolic — declaring that people can use a one-ounce federally minted gold coin at its face value of $50 doesn't really give people a reason to do that," Lawrence H. White, a professor of economics at George Mason University who has published several reports on the topic, tells ABC News.

"But it's a statement by the state legislators that they are concerned by the state of the dollar."

Today's loose monetary policy aims to rekindle more robust economic growth although it threatens to send inflation rising in the process.

Federal Reserve officials, meanwhile, say rising inflation rates don't merit tighter policy.

"The Fed is not going to see inflation as a threat so they have the freedom to keep interest rates low longer," David Wyss, chief economist at Standard & Poor's Ratings Services in New York, tells Reuters.

"But core inflation is creeping up from its lows six months ago, so the Fed is going to end its extraordinary measures."

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