Gold Reserve Act of 1934
The Gold Reserve Act of 1934 was a significant piece of legislation enacted in the United States during the Great Depression, aimed at stabilizing the economy. Following Executive Order 6102, which mandated the surrender of gold holdings, the Act made it illegal for individuals to possess gold coins or bullion, effectively withdrawing gold from circulation. It established that all gold would be stored under military protection at Fort Knox and other military sites, with the Federal Reserve also required to turn over its gold reserves. The Act granted the president authority to devalue the gold dollar, facilitating an increase in the gold price to $35 per ounce, which resulted in substantial profits for the government.
By consolidating gold reserves under the Treasury and prohibiting private ownership, the Act aimed to curb gold hoarding, thereby reinforcing the dollar as the primary monetary standard. This legislative move was seen as a measure to stimulate economic recovery and restore public confidence in the financial system during a tumultuous period in American history. Overall, the Gold Reserve Act played a crucial role in reshaping the U.S. monetary policy landscape, reflecting the government's response to economic challenges of the time.
Gold Reserve Act of 1934
The Law Federal law making the possession of gold illegal
Also known as Thomas Amendment
Date January 30, 1934
This law was enacted both to stimulate the U.S. economy and to ensure that one currency standard, the U.S. dollar, would be used for commerce.
In response to the Great Depression, President Franklin D. Roosevelt proposed Executive Order 6102 on April 5, 1933, an order that required all people to exchange their gold coins, gold bullion, and gold-backed currency for money that was not redeemable in precious metals. On January 30, 1934, Congress passed the Gold Reserve Act of 1934, also known as the Thomas Amendment, which amended the original act of May 12, 1933, making it illegal to possess any gold currency. Thus, all gold coinage was withdrawn from circulation and was kept in the form of bullion.
All gold was to be housed and protected under military control at Fort Knox, Kentucky, and at other military bases. In addition to the general public, the Federal Reserve was also to surrender all of its gold. The act also authorized the president to devalue the gold dollar so that it would have no more than 60 percent of its existing weight. However, while people received $20.67 an ounce in paper money issued by the Federal Reserve, the Federal Reserve was paid in gold certificates, which were assigned no specific monetary value. Thus, the Treasury owned all U.S. gold reserves, and no one else inside the United States was permitted to possess any gold except by the express authorization of the Treasury. The act helped increase the value of gold to $35 an ounce in 1934, producing close to a $3 billion profit for the government.
Impact
The Gold Reserve Act helped stimulate the U.S. economy after the Great Depression. Additionally, the law helped prevent the hoarding of massive gold supplies by private citizens, ultimately allowing the government to establish the dollar as the sole economic standard.
Bibliography
Eichengreen, Barry. Golden Fetters: The Gold Standard and the Great Depression, 1919-1939. New York: Oxford University Press, 1992.
Friedman, Milton, and Anna Jacobson Schwartz. A Monetary History of the United States, 1867-1960. Princeton, N.J.: Princeton University Press, 1963.