Would having the gold standard make the dollar stronger?

Question

even if 10% was backed by gold

Answer 1

How the Gold Standard works:

The gold standard works thusly: the total amount of money equates to the total amount of gold held in the national reserves. Your dollar bill literally becomes a certificate of your ownership of the proportionate amount of gold int he antional reserves. If a nation had high gold reserves relative to the amount of money, then the currency would be very valuable, vice versa. The gold standard is usually used completely, with 100% of the money being backed by the reserves.

China and Japan

China and Japan combined hold 40% of all the gold in the world in their national reserves, thought their money isn't backed by the Gold Standard. If they were to use the Gold Standard their currencies would appreciated tremendously, which is why they don't use it. China and Japan wouldn't be able to export anything, since their wares are far too costly relative to other currencies. The US on the other hand, does not hold that many gold reserves. It does have a substantial quantity, but not enough to help the dollar appreciate.

If you're worried about the US dollar (USD) falling...

A big concern for politicians on capitol hill right now is the widening trade deficit. Although the trade deficit has fallen in terms it as a percentage of GDP (a more relevant comparison), the widening trade deficit is still causing a stir, with some politicians even demanding that the Chinese Yuan be appreciated or have a hefty tarrif imposed on Chinese imports. Right now, the best thing for closing the trade deficit is a falling USD. THis makes US goods more attractive price-wise, as well as US made goods being prized the world over for quality manufacture. It could be argued that the US economy could use the weaker dollar, though this is just trading the problem of a trade deficit for the problem of a decrease in consumer purchasing power (imports are now more expensive in terms of USD).

In a nutshell: I'm afraid the gold standard would not help the USD appreciate, and would more likely cause it to depreciate even further.

Answer 2

When international exchange rates were backed by gold, having gold was a sign a currency was strong, not the cause of a strong currency. There are many example of a currency backed by gold becoming weak and the currency devalued, the most memorable is the US dollar in 1973. The currency was so important and so weak that flexible exchange rate were put in and the Gold standard abolished

Answer 3

I don't believe so. The US economy is so so big that there is not enough Gold to back the dollar.

Answer 4

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Answer 5

Well, there is plenty of gold. Ever hear of Fort Knox?

However, there simply isn't enough gold (at this point) to support that sized economy.

There's two big places where America keeps her gold:

http://en.wikipedia.org/wiki/United_States_Bullion_Depository

http://en.wikipedia.org/wiki/Federal_Reserve_Bank_of_New_York