History of The United States Dollar - Fiat Standard

Fiat Standard

Today, like the currency of most nations, the dollar is fiat money, unbacked by any physical asset. A holder of a federal reserve note has no right to demand an asset such as gold or silver from the government in exchange for a note. Consequently, some proponents of the intrinsic theory of value believe that the near-zero marginal cost of production of the current fiat dollar detracts from its attractiveness as a medium of exchange and store of value because a fiat currency without a marginal cost of production is easier to debase via overproduction and the subsequent inflation of the money supply.

In 1963, the words "PAYABLE TO THE BEARER ON DEMAND" were removed from all newly issued Federal Reserve notes. Then, in 1968, redemption of pre-1963 Federal Reserve notes for gold or silver officially ended. The Coinage Act of 1965 removed all silver from quarters and dimes, which were 90% silver prior to the act. However, there was a provision in the act allowing some coins to contain a 40% silver consistency, such as the Kennedy Half Dollar. Later, even this provision was removed, with the last circulating silver-content halves minted in 1969. All previously silver coins minted for general circulation are now clad. During 1982 the composition of the cent was changed from copper to zinc with a thin copper coating. The content of the nickel has not changed since 1946. Silver and gold coins are produced by the U.S. government, but only as non-circulating commemorative pieces or in sets for collectors.

All circulating notes, issued from 1861 to present, will be honored by the government at face value as legal tender. This means only that the government will give the holder of the notes new federal reserve notes in exchange for the note (or will accept the old notes as payments for debts owed to the federal government). The government is not obligated to redeem the notes for gold or silver, even if the note itself states that it is so redeemable. Some bills may have a premium to collectors.

The only exception to this rule is the $10,000 gold certificate of Series 1900, a number of which were inadvertently released to the public because of a fire in 1935. A box of them was literally thrown out of a window. This set is not considered to be "in circulation" and, in fact, is stolen property. However, the government canceled these banknotes and removed them from official records. Their value, relevant only to collectors, is approximately one thousand US dollars.

According to the Federal Reserve Bank of New York, there was $829 billion in total US currency in worldwide circulation as of December 2007.

In September 2004, it was estimated that if all the gold held by the U.S. government (287.13 million ounces = 8.14 million kilograms = 8,140 metric tonnes) were again required to back the circulating U.S. currency ($733,170,953,704), gold would need to be valued at $2,800/ounce ($90/gram).