In 1933, the U.S. abandoned the gold standard domestically, and in 1971, they completely severed the connection between gold and the dollar internationally as well. Recently, many economists have proposed we go back to the gold standard because it limits credit and eliminates seignorage which can contribute to hyperinflation. Federal Reserve Chairman, Jerome Powell, thinks this is not a great idea. He believes going back to the gold standard will limit the impact of the Fed on the economy. Sure there would be little to no inflation and lack of debt, but the Fed would not be able to control certain macro economic factors such as the the unemployment rate or interests rates. It is ultimately interesting that after 86 years this is still being discussed, indicating there may be some merit.
https://www.cnbc.com/2019/07/10/feds-powell-explains-why-a-return-to-the-gold-standard-would-be-so-damaging-to-the-economy.html
I would think that perhaps this would be worth considering, that is going back to the gold standard, if the United States had hyperinflation. However, we have not experienced, and have no indication we will be experiencing, hyperinflation, so there doesn't seem to be a point in going back to the gold standard. Although we should find a way to limit our credit, having the Fed lose the ability to effect the macro economic factors it does effect would be detrimental to our economy to a more significant degree than the potential benefits it would bring.
ReplyDeleteProponents of the gold standard currency argue that it provides long-term economic stability and growth. It also prevents inflation, and would reduce the size of the government. It would reduce the ability of the government to print money whenever they need/want, it would reduce the ability for the government to run up large deficits, and increase the national debt.
ReplyDeleteHowever, those who argue the opposition claim that gold currency would create economic instability, periodic economic deflation and contraction, and it would prevent the government from being able to stimulate the economy and change unemployment. I feel like in this day and age, more people would want fiat money because they want the government to have the power to change the availability of money in the economy in order to prevent unemployment or help during recessions and financial crises.