Janet Yellen surprised financial markets on Tuesday when she announced that the United States would be returning to the gold standard, more than 40 years after Richard Nixon initially unmoored the US dollar from gold. The announcement marks a major shift in the nation’s monetary policy, and was apparently settled after an unscheduled meeting of the Federal Reserve’s Open Market Committee (FOMC).
“I just don’t see any reason for our entire financial system to rest on something as unstable as a fiat currency,” she said in a press conference. “Gold is stable, it has an intrinsic value that paper money simply can’t match. With the destabilizing effect quantitative easing has had on our currency, this seems like the only course of action.”
The gold standard has long been a fixation for many, with prominent politicians and commentators like Ron Paul and Steve Forbes insisting it was the only prudent course of action. Those calls were amplified after the implementation of quantitative easing, a spending program by which the Federal Reserve effectively increased the money supply by buying up treasury bills, raised concerns about a fiat system with a fluid money supply.
However, the suddeness of the move ultimately shocked many in the financial markets given how drastic the shift is. Yellen, however, appeared confident that the decision was the correct one.
“In the end, our critics were right,” Yellen continued. “I wouldn’t be doing my job if I let a series of ivory tower economists tell me what to do rather than listening to those people with good, solid business sense. Well, I could not find one, single economist who told me that this was a smart thing to do, and that’s why I did it in the end.”
The move was applauded by many on the right, who have long felt that the Federal Reserve held too much power in its capacity to create or destroy the value of the world's preferred currency.
“Ultimately, it just got exhausting doing everything in our power to keep down the price of gold,” she said. “Without us constantly working with the major investment banks, it would already be at $10,000 an ounce. At some point, you just have to wake up and smell the coffee. I'm hoping the President feels the same way.”
Yellen's decision will ultimately need the support of the administration and congress, but her endorsement of the policy gives it a distinct chance of passage.