Historical Review of the Relation of Gold to Money in the US and Abroad

In the second half of the 19th century, bimetallism progressively was replaced by gold standard. After World War I and the 1931-33 depression, gold was mainly reserved for official international transactions and internal use was restricted. Changes since 1971 have shrunk official international use of gold. International payments deficits and surpluses are now financed by Private and official credit, rarely by gold. This historical review covers evolution of: (1) internal and external private use, (2) internal official use, (3) external official use, (4) its role in the International Monetary Fund, and (5) use as unit of account. For this paper I have tried to take a longer perspective than is usually possible, and to look, even if very briefly, at the changing relationship of gold to the monetary system over the last 200 years or so. There are, I believe, some long-term trends, continuing down to the present day. These trends have seen gold replaced by some form of paper assets in one monetary function after another. These past trends may help us to understand where gold stands now, and possibly will throw some light on the future. Because it seems to me that gold in the past has performed various functions related closely or marginally to money, I have divided this rapid historical review into several sections: (1) the internal and external private use of gold, (2) the internal official use of gold, (3) the external official use of gold, (4) gold and the International Monetary Fund, and (5)gold as a unit of account.