Also, the gold standard was based on trust too. You trusted that the government would honour your request to exchange dollars for gold.
You also trusted that the supply of gold would not suddenly increase and devalue gold as a commodity. Or that demand for the specie doesn’t collapse because… let’s say, hypothetically, the world’s largest economy stops keeping it as a reserve currency.
The former happened in the second half of the 16th century, in an event known as the Price Revolution.
The latter was part of the Nixon Shock, following the unilateral cancellation of the direct international convertibility of the United States dollar to gold.
Incidentally, Nixon exiting the Gold Standard could more rightly be pinned on Charles DeGaulle.
In February 1965, French president Charles de Gaulle announced his intention to redeem U.S. dollar reserves for gold at the official exchange rate. By 1966, non-U.S. central banks held $14 billion in U.S. dollars, while the United States had only $13.2 billion in gold reserves, of which only $3.2 billion was available to cover foreign holdings.
In March 1968, the London Gold Pool collapsed.
In May 1971, West Germany left the Bretton Woods system, unwilling to sell further Deutschmarks for U.S. dollars.[10] In the following three months, the U.S. dollar dropped 7.5% against the Deutschmark, and other nations began to demand redemption of their U.S. dollars for gold.[10] On August 5, 1971, the United States Congress released a report recommending devaluation of the dollar in an effort to protect their currency against “foreign price-gougers”.[10] Also in August, French president Georges Pompidou sent a battleship to New York City to retrieve French gold deposits.[11] On August 9, 1971, as the dollar dropped in value against European currencies, Switzerland left the Bretton Woods system.[10] Pressure intensified on the United States to leave the Bretton Woods system. On August 11, Britain requested $3 billion in gold be moved from Fort Knox to the Federal Reserve in New York.[11] As Paul Volcker, then Undersecretary of the United States Department of the Treasury for Monetary Affairs, later put it:
You also trusted that the supply of gold would not suddenly increase and devalue gold as a commodity. Or that demand for the specie doesn’t collapse because… let’s say, hypothetically, the world’s largest economy stops keeping it as a reserve currency.
The former happened in the second half of the 16th century, in an event known as the Price Revolution.
The latter was part of the Nixon Shock, following the unilateral cancellation of the direct international convertibility of the United States dollar to gold.
Incidentally, Nixon exiting the Gold Standard could more rightly be pinned on Charles DeGaulle.