Why does the United States have an inconvertible money standard?

Essay by hotfernyHigh School, 11th gradeA+, December 2002

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Why does the United States have an inconvertible money standard?

The United States economy has an inconvertible money standard, due to the fact of two main reasons; the first reason is that the United States cannot possibly backup the dollars of the growing economy and the growing population of the nation. The second reason is that gold is a very scarce resource and gold cannot be produced or created, it occurs naturally in the earth. To begin with, gold had a value of 1/20.67 of an ounce for every dollar when there were several million people in the United States. That would mean that for every one person, for every one dollar, there had to be at least that much gold. This would create a problem because people would eventually realize that there wasn't that much gold available in the banks so sooner or later, they will want to go and try to cash in their dollars for gold, causing a run on all of the banks.

Since all this gold cannot be produced, how will the limited amount be distributed? They would only have two choices; either the value of the gold would go up meaning the dollar value in America would go down or most likely a revolution against the government would occur due to the fact that they do no have all the gold to back up the citizens' money. Due to this, the United States has an inconvertible money standard. Not enough gold is available for the growing population so the economy needed something to make sure that people would not start fighting.