GOLD RESERVES. By tradition currency is metallic, gold, silver, copper or an alloy. The basic coin in most western coun tries has been gold. Banks issued notes which were a promise to pay gold on demand. Also they accepted deposits withdrawable in gold. For this purpose they held a reserve of gold available at any time for the discharge of these obligations. The reserve was not as large as the corresponding liabilities to pay, for the assumption was that all holders of notes and all depositors would not apply for gold at the same time. A run on a bank meant that such customers, moved by misgivings, applied for payment simultaneously.
National treasuries have issued, or permitted banks to issue, paper money which is valued in terms of gold. As in the case of banks, the assumption was that holders of this money could ob tain gold for it at any time by applying in the proper quarter ; and gold up to a percentage of currency was held by the treasury or its agents. During and after the World War many governments, financially hard-pressed, withheld gold from their own people who were therefore compelled to use paper as the only alternative. In Great Britain, the price of gold rose and large accumulations of domestic ornaments were brought into the market. Italy (1936) went so far as to help finance her Ethiopian War by appealing to wives to surrender their wedding rings.
As a result of the depression and of the banking crisis, the United States Congress passed a law in 1933 enabling the presi dent to devalue the dollar by not over 5o%. By presidential action all gold certificates were called in and the dollar devalued by approximately 40%. The gold reserve of the government, then about $2,500.000,000, rose until in October 1939 it was over $16,970,000,000, well over half the world's gold reserves, and much more than the total outstanding currency in the United States.