How Does Fiat Money Work?
So 70 dollars matched two ounces of gold; the paper had a promise behind it.
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1.Under Bretton Woods, at what rate was the US dollar convertible to gold?
So 70 dollars matched two ounces of gold; the paper had a promise behind it.
2.At 35 dollars an ounce, what would four ounces of gold cost?
Four times 35 is 140 dollars.
3.What problem did the gold promise face?
If everyone asked for gold at once, the promise could not be kept; that is a run on gold.
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Sources (4)
- Gold Convertibility Ends (Federal Reserve History, Federal Reserve Board)
- What is fiat money? (Banco de Espana, FAQ, Zentralbank)
- Is U.S. currency legal tender? (FAQ, Board of Governors of the Federal Reserve System)
- Eigene Rechnung: Umtauschkurs 35 USD je Unze Gold (Illustration)
Education only. Not financial advice.