FED - The changing role of gold in the International Monetary System

Winter 1974-75
By Hang-Sheng Cheng and Nicholas P. Sargen

"Without any fanfare, the United States has now closed a long chapter in its monetary history. On December 31, 1974, the Government revoked a 41-year ban on U.S. citizens' ownership of gold, and a week later, on January 6, 1975, it started auctioning a portion of its gold stock on the open market. These actions not only signaled the U.S. Government's decision to end the monetary role of gold, but also called into question the metal's future role in the world economy. Symbolically, the auction was conducted not by the U.S. Treasury, a monetary authority, but rather by the General Services Administration, a housekeeping arm of the U.S. Government. Thus, in a quiet way the U.S. Government suggested to the world that henceforth it will handle its gold in the same way it han dies its used office furniture.
This historical decision presaging an end to the monetary role of gold has important implications for the world at large. As far back as mankind's memory extends, gold has been associated with money as a store of value, as a means of payment, and as a backing for national currencies. Because of the deep-rooted association of gold with money, many people will continue to regard gold as a prime financial asset for a long time into the future. Advocates of gold will question not only the
Government's wisdom in attempting to demonetize the metal, but even its ability to end unilaterally the monetary role of gold, either in the international monetary system or in the minds of the public..."

...

"The decline and fall of the gold standard has been so exhaustively analyzed in standard textbooks and popular writings 5 that it would not be worthwhile repeating here. Suffice it to say that gold's relative importance started to decline even during the nineteenth centry, as its share in the aggregate money supply of Britain, France, and the United States declined from about one-third in 1815 to only one-tenth in 1913, while the share of bank deposits expanded from a mere six percent to sixty-eight percent. 6 Robert Triffin has characterized this period as a century of "gradual euthanasia" of gold money and its replacement by credit money..."

Source: http://www.frbsf.org/publications/economics/review/1975/75-1a_5-15.pdf