in economics, monetary system wherein all forms of legal tender may be converted, on demand, into fixed quantities of fine gold, as defined by law. Until the 19th century, most countries of the world maintained a bimetallic monetary system. The widespread adoption of the gold standard during the second half of the 19th century was largely a result of the Industrial Revolution, which brought about a vast increase in the production of goods and widened the basis of world trade. The countries that adopted the gold standard had three principal aims: to facilitate the settlement of international commercial and financial transactions; to establish stability in foreign exchange rates; and to maintain domestic monetary stability. They believed these aims could best be accomplished by having a single standard of universal validity and relative stability; hence the gold standard is sometimes called the single gold standard.

The first country to go on the gold standard was Great Britain, in 1816. The U.S. made the change in 1873, and most other countries followed suit by 1900. With some exceptions, the prevalence of the gold standard lasted until the economic crisis of 1929 and the ensuing depression. Between 1931 and 1934, the governments of virtually all countries found it expedient or necessary to abandon the gold standard. This policy was partly motivated by the belief that the exports of a country could be stimulated by devaluating its currency in terms of foreign exchange. In time, however, the advantage thus gained was offset as other countries also abandoned the gold standard. In the U.S., a policy of devaluation of the currency was initiated by President Franklin D. Roosevelt. Shortly after his inauguration in April 1933, the U.S. went off the full gold standard in favor of the “modified gold bullion standard.” Under this system, the circulation of gold coins is prohibited by law, but gold is still used in defining the value of the dollar, then set at 1/35 of an ounce of gold. In 1971 the U.S. suspended the free exchange of U.S. gold for foreign-held dollars and then devalued the dollar to 1/38 and in 1973 to 1/42.22 of an ounce of gold.

In 1975 the role of gold was further diminished when the U.S. government began to sell some of its holdings on the open market, making gold more of a commodity than a standard in the international monetary system. In 1978, in conjunction with reforms made by the INTERNATIONAL MONETARY FUND (q.v.), Congress formally removed the U.S. from the gold standard on an international basis. At the end of the decade no major currency was redeemable in gold.

For further information on this topic, see the Bibliography, section 235. Money.