How the British Pound Sterling and other currencies lost their gold backing

The international monetary system has not always operated as it does today. In the past, paper money was genuinely a receipt—a simple proof of deposit. When you deposited gold in a bank, you received a note stating: “The bearer of this note may exchange it for X grams of gold.” It was not the paper that held value; it was the precious metal stored in the vault. The paper merely facilitated transactions and the transfer of wealth between individuals and nations.

The classical system: when paper was just a proof of deposit

For centuries, this mechanism functioned with admirable stability. The main world currencies—including the British pound, the French franc, and the US dollar—operated under this principle: each note in circulation was backed by equivalent amounts of gold. This system created transparency and trustworthiness. Depositors could sleep peacefully knowing their savings were protected by a tangible and inviolable asset.

The erosion of the gold standard: when greed overtook responsibility

However, governments eventually recognized a perverse advantage in this model: if people trusted the paper, they would rarely go to banks to claim the actual gold. They began a silent and gradual issuance of paper beyond what they truly held in gold. First, they issued a little more. Then, much more. And they continued expanding.

For decades, no one questioned it. But as doubts multiplied and mass redemption requests began, governments made a radical decision: in 1971, they permanently closed the “gold window”—the access to redeem paper for precious metal. They promised this measure would be “temporary.” Fifty-five years later, we are still waiting for that temporary period to end.

The legacy of abandoning gold: a currency based on pure air

Today, the dollar—and virtually all global currencies—are backed by nothing tangible. They are just paper. Only a promise that no one is obliged to fulfill. Trust has become the only backing of the world’s currency.

And what was the price of this “modernity”? Its purchasing power has shrunk by approximately 97% since 1971. A dollar that was worth one dollar now has less than three cents in real buying power. What started as a claim ticket has turned into paper with no intrinsic value. The receipt evolved into the currency itself, and the currency evolved into nothing more than a fragile trust structure supporting the global economy.