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On January 30, 1934, the Gold Reserve Act prohibited private ownership of gold except under license. It allowed the government to pay its debts in dollars, not gold. It authorized FDR to devalue the gold dollar by 40 percent. He did this by increasing the price of gold, which had been $20.67 per ounce for 100 years, to $35 per ounce. The government’s gold reserves increased in value from $4.033 billion to $7.348 billion. This effectively devalued the dollar by 60 percent.

The Depression ended in 1939. That allowed countries to go back on a modified gold standard.

The 1944 Bretton Woods Agreement set the exchange value for all currencies in terms of gold. It obligated member countries to convert foreign official holdings of their currencies into gold at these par values. Gold was set at $35 per ounce. Track the price of gold from 30 B.C. to the present through the gold price history.

The United States held most of the world’s gold. As a result, most countries simply pegged the value of their currency to the dollar instead of to gold. Central banks maintained fixed exchange rates between their currencies and the dollar. They did this by buying their own country’s currency in foreign exchange markets if their currency became too low relative to the dollar. If it became too high, they’d print more of their currency and sell it. It became more convenient for countries to trade when they peg to the dollar.

As a result, most countries no longer needed to exchange their currency for gold. The dollar had replaced it. As a result, the value of the dollar increased even though its worth in gold remained the same. This made the U.S. dollar the de facto world currency.