Executive Order 6102 is an executive order that former president Franklin D. Roosevelt signed in 1933. It outlawed private gold ownership and ended the gold standard in the United States.[1] The American Presidency Project. “Executive Order 6102—Requiring Gold Coin, Gold Bullion and Gold Certificates to Be Delivered to the Government” Accessed Feb. 24, 2022.
After Executive Order 6102 came into force, American citizens weren’t allowed to own more than $100 worth of gold coin, gold bullion or gold certificates. Gold ownership became legal again in the United States in 1974.
Until 1933, the United States and many other countries were on the gold standard. This meant they had to back all paper currency with a certain percentage of physical gold.
Under the gold standard, bank notes and gold certificates were redeemable for gold. Americans could convert their dollars into gold at any time. Bank notes and certificates weren’t “money” on their own. They acted as paper receipts or certificates for gold.
Leading up to Executive Order 6102, the United States experienced economic problems that culminated in the stock market crash of 1929 and the subsequent Great Depression.
The severity of the Great Depression as well as international currency devaluation put pressure on the United States.
Many countries had already gone off the gold standard and devalued their currencies against the US dollar during the inter-war period. This put the United States in an undesirable position in international trade.
It eventually led to Roosevelt issuing Executive Order 6102 and taking the United States off the gold standard. Devaluing the dollar allowed the Untied States to remain competitive in international trade. Having the ability to print more dollars was also a tool used to fight the Great Depression.
The Great Depress was the worst economic crisis in history. It led to deflation and a contraction of the money supply.[2] Federal Reserve History: “The Great Depression” Accessed Feb. 24, 2022.
Americans lost a lot of money during the stock market crash and because of bank failures.[3] Roth, Benjamin: The Great Depression. A Diary (2010), pp. 11ff. The little paper money and gold they had left, they “hoarded” or held onto.
Prices of stocks, real estate, commodities and consumer products decreased due to deflation. Large parts of the economy grind to a halt. Many banks closed because they had overextended their loans during the inter-war period.
As individuals and companies defaulted on their debt and mortgages, banks didn’t have enough liquidity to pay back depositors. When depositors lined up in a state of panic to withdraw their money, this added to the problem and led to many banks going bankrupt.
Overextended loans, defaults and bank runs led to bank closures on a daily basis. This wiped out the savings of many Americans and led to unemployment and poverty.
While only around 2.5% of Americans had money in stocks at the time of the Great Depression, the loss of savings as a result of bank closures was significant. The real estate market suffered immensely as well.
The overall effects of the Great Depression were devastating.
One of the reasons why Franklin D. Roosevelt issued Executive Order 6102 was to expand the money supply in order to fight the Great Depression.
The Federal Reserve, which was still a relatively young institution at the time, couldn’t expand the money supply arbitrarily under the gold standard. All newly issued paper currency had to be backed to 40% by gold.
Additionally to the contraction of the money supply, many countries, including Great Britain, had already gone off the gold standard. [4] Britannica. “The decline of gold” Accessed March. 1, 2022. These countries began inflating their currencies, which allowed them to benefit in international trade.
Countries that inflated their currencies could make their exports more attractive because products denominated in their currencies became cheaper. This helped them increase external demand and reduce their trade deficits.
Great Britain and other countries going off the gold standard put pressure on the United States to do the same. The US government eventually devalued the US dollar to remain competitive.
Executive Order 6102 effectively ended the gold standard in the United States. This was almost two years after Great Britain had left the gold standard in 1931.
As a result, Americans weren’t able to convert paper money into gold anymore. By severing the ties between paper money and gold, the United States government could strengthen its exports and fight deflation by expanding the money supply without having to acquire more gold.
Executive Order 6102 made it illegal for Americans to own more than $100 worth of gold, with a few exceptions such as artists, jewelers and dentists. American citizens had to turn in their gold bullion, coins and gold certificates.
Non-compliance was punishable with fines up to $10,000 or 10 years in prison.[5] The American Presidency Project. “Executive Order 6102—Requiring Gold Coin, Gold Bullion and Gold Certificates to Be Delivered to the Government” Accessed Feb. 24, 2022. However, in reality these severe punishments were rare.
There are cases of prosecuted individuals, but the executive order’s threats of fines and imprisonment partially turned out to be a “bluff”.
Large-scale prosecution was challenging.[6] Times. “Gold Indictment No. 1” Accessed March 25, 2022.
President Franklin D. Roosevelt signed Executive Order 6102 shortly after taking office.
Hoover was president before Roosevelt. He signed the Reconstruction Finance Corporation Act to provide struggling banks with money, but it wasn’t enough to lift the United States out of the Great Depression.[7] Federal Reserve History: “Reconstruction Finance Corporation Act” Accessed Feb. 24, 2022. Roosevelt wanted to change this with a more aggressive approach.
The speed of implementation, severity and implications of Executive Order 6102 made some people question if it was constitutional or not.
Gold “hoarders” argued that it was unconstitutional.[8] US Supreme Court: “Perry v. United States, 294 U.S. 330 (1935)” Accessed March 25, 2022. They viewed Executive Order 6102 as a confiscation of their private property and a breach of contract.
Prosecutions under Executive Order 6102 were ruled invalid by Federal Judge John M. Woolsey, because it had been signed by the president instead of the Secretary of the Treasury.[9] Times: “Sequels, Nov. 27, 1933” Accessed March 25, 2022.
This led to a series of related Executive Orders signed by the Secretary of the Treasury Henry Morgenthau.
Although citizens received paper money in return for their gold, the Gold Reserve Act of 1934 came into effect a few months later. The Gold Reserve Act of 1934 repriced gold from $20.67 to $35 per ounce of gold.
This meant, even if people handed over their gold in return for paper currency, they received around 40% less than the original value of their gold.
Another problem was that bonds and private contracts that were payable in gold now had to be paid in paper money.
There were several legal cases involving citizens that demanded payment in gold. But the Supreme Court eventually upheld all gold seizures as constitutional.
The Gold Reserve Act of 1934 further made gold clauses unenforceable and authorized the President to establish the gold value by proclamation. Following its passage, Roosevelt repriced gold and devalued the US dollar.[10] Federal Reserve History: “Gold Reserve Act of 1934” Accessed March 25, 2022.
It was the beginning of continuous mild or moderate inflation in the United States.
In 1944, global leaders drafted the Bretton Woods system, which pegged to US dollar to gold at $35 per ounce.[11] Federal Reserve History: “Creation of the Bretton Woods System” Accessed Feb. 22, 2022. All participating nations pegged their own currencies at fixed exchange rates to the US dollar.
This monetary system allowed the United States and other countries to maintain an indirect peg to gold.
Gold ownership was still illegal for American citizens. But foreign nations could redeem their US dollars for gold at a fixed exchange rate of $35 per ounce. This gave the US dollar its status as world-reserve currency.
Due to its peg to gold, the US dollar was considered as good as gold. But in 1971, former president Nixon severed all ties to gold.
This became known as the Nixon Shock. Countries that signed the Bretton Woods agreement weren’t able to redeem their US dollars for gold anymore.[12] The American Presidency Project: “Address to the Nation Outlining a New Economic Policy: “The Challenge of Peace.”” Accessed March 18, 2022. This effectively ended the Bretton Woods system and led to a system of floating exchange rates.
A few years later, all currencies became fiat currencies and traded at floating exchange rates. From this point onward, currencies weren’t backed by anything but the faith and creditworthiness of the governments that issued them.
Gold ownership became legal again for American citizens in 1974 when president Gerald Ford signed a bill that allowed private ownership of gold coins, bars and certificates.
Private gold ownership was illegal for more than 40 years between 1933 and 1974. Since then, gold ownership remains legal in the Untied States. Despite this, critics of Executive Order 6102 argue that it was an indirect default of the United States government.
Some critics view the end of the gold standard as problematic. They argue that the economy was more stable under the gold standard. Pegging a currency to gold puts constraints on how much governments can spend.
Most mainstream economists believe the gold standard wasn’t flexible enough and returning to a gold standard would do more harm than good.
Criticism of excessive money printing and government spending came up again during the Global Financial Crisis in 2008 and the Covid-19 related crisis in 2020.