From Commodity to Fiat

Gold certificates, that is the paper currency itself, has little or no value in use, but it can be, in principle, exchanged for the gold that DOES have value in use. In theory, ideally, in principle, the gold with its value in use is the ultimate medium of exchange. However, in practice, in reality, the paper certificates with little or no direct value in use are the medium.

If the general public never exchanges the paper certificates for the metal, if the public loses track of how much metal is actually stockpiled to back the certificates, then the certificates need not be backed fully by the metal. This moves the certificates several steps closer to fiat money.

Two Sets of Gold

• The first period, 1865 to 1922, produced large-sized bills (about 25 percent larger than modern currency) in nine denominations ($10, $20, $50, $100, $500, $1,000, $5,000, and $10,000). The 1907 $10 gold certificate contained a gold Roman numeral "X" on the face, giving rise to the "sawbuck" nickname for the ten-dollar bill. The 1906 $20 gold certificate had "XX" and generated the "double sawbuck" nickname.


• The second period, 1928 to 1934, produced small-sized bills that came a lot closer to the look of modern currency (at least before Federal Reserve notes were redesigned in 1996). This more recent set of gold certificates came in nine denominations ($10, $20, $50, $100, $500, $1,000, $5,000, $10,000, $50,000, $100,000). Because the ownership of gold by the public was outlawed in 1933, after than time gold certificates only circulated among Federal Reserve Banks.