US Monetary System

The Two-Tier Monetary System that Ended in 1971, by Martin Armstrong, 5/6/18

QUESTION: You said the US had a two-tier monetary system under Bretton Woods. Can you explain that one, please? - DHJ

ANSWER: When Roosevelt confiscated gold, he created, in reality, a two-tier monetary system quite frankly as the medieval city of Florence. The Great Financial Panic of 1344 was when the value of silver rose dramatically blowing out the silver/gold ratio. Silver was used locally for the normal people. Their wages were paid in silver. The gold florin was used for international trade and companies had to keep actually two sets of books with accounting in each separate currency.

When Roosevelt confiscated gold, he devalued the dollar from $20.67 per ounce of gold to $35. Gold remained the unit of account for INTERNATIONAL transactions. While the last silver dollar was at first still minted, it was decided to end that production as well. Therefore, the last U.S. silver dollar to be struck was that of 1935. Nonetheless, the government then maintained silver as a backing for the currency domestically and issued Silver Certificates until 1963.

When the price of silver was rising with just about all other commodities during the early 1960s, the pressure was mounting on the financial system. President Kennedy authorized the abandonment of silver as a backing for the currency. He allowed the silver certificates to be redeemed for silver bullion. However, the minimum lot accepted for redemption was 5,000 for this was the size of the silver bars.

Therefore, in 1963 is when we see the beginning of the end in the two-tier monetary system. Between 1964 and 1971, the gold standard remained intact until President Nixon was forced to close the gold window ending the convertibility of dollars to gold internationally.

So, you see, the United States maintained a two-tier monetary system like Florence, silver for domestic use and gold for international trade. The difference was that when the silver/gold ratio broke, people were laid-off and unemployment soared. The people stormed the palaces of the bankers, plundered them, and then set them on fire.

https://www.armstrongeconomics.com/history/americas-economic-history/the-us-two-tier-monetary-system-that-ended-in-1971/

Comments

After 1971, gold and silver backing of the US dollar was gone. Gold and silver continued to be a commodity mined and sold to industries that used these metals to make products like jewelry, dentistry and electronics. By 1974, gold was being sold to individuals for $37.50 per ounce. By 1980, gold was selling for $800 per ounce.

Productivity had declined after the 1960s and wages continued to climb. Capital investment needed to increase productivity dried up and inflation that had been at the 7% per year level was set to almost double.

Government initiated money printing in the 1970s reduced the value of the US dollar and dual income families became the rule and most moms went to work to support household income. Rather than pay off their debt, the US federal government printed money and monetized the debt.

In 1980, Reagan was elected to end inflation and lower tax rates to reignite the private sector with working capital and it worked.

Norb Leahy, Dunwoody GA Tea Party Leader