The day owning gold
became a crime
On 5 April 1933, Franklin Roosevelt signed an order requiring Americans to hand their gold to the Federal Reserve by 1 May. Holding gold, an ordinary act the day before, became an offence punishable by ten years in prison.
Hand over your gold or risk ten years in prison
In the spring of 1933 the United States was emerging from four years of crisis and bank panics. Savers were swapping their banknotes for gold, which banks had to pay out at $20.67 an ounce, and the Federal Reserve's reserves were draining. Yet the gold standard ties the quantity of money to the stock of metal: as long as gold flows out, the central bank can hardly create liquidity to support the economy.
A month after his inauguration, Roosevelt relied on the 1917 Trading with the Enemy Act, extended in March by the Emergency Banking Act, and signed Executive Order 6102 on 5 April 1933. It forbade the hoarding of gold coin, bullion and certificates and demanded their delivery to the Federal Reserve banks by 1 May, in exchange for $20.67 an ounce. Offenders faced up to $10,000 in fines and ten years in prison. Still allowed were $100 in coins per person, about five ounces, rare coins prized by collectors, and gold for industrial, professional or artistic use.
The striking detail is the price. The government bought gold at the old parity of $20.67 an ounce. A few months later the Gold Reserve Act, passed in January 1934, set the dollar at $35 an ounce of gold. Metal surrendered at $20.67 was now worth 69% more, and the gain went to the Treasury, not to those who had complied.
When the state takes back control of money
The episode shows that the gold standard was first of all a political constraint: as long as anyone could convert paper into metal, the central bank remained a prisoner of holders' confidence. By pulling gold out of private hands, then raising its price, Washington loosened that constraint and could expand the money supply. The devaluation then allowed credit to widen without fear of a run on the counter.
A lasting lesson on the monetary bargain remains: convertibility is a promise, which the state can revoke by decree when it becomes too costly. Private gold ownership was restored in the United States only on 31 December 1974. Every debate on the status of gold, or of a digital safe-haven asset, reopens the same question: who holds the money of last resort, and on what terms?
A convertible currency lasts only as long as the state agrees to convert it.