One in three Americans think dollar is backed by gold

The dollar hasn't been pegged to gold since 1971, but one in three Americans still think it is. This is according to a study by Genesis Mining, a company that deals with the 'mining' of virtual coins. The survey of 1,000 respondents shows that 70% cannot give the right answer to the question of what the dollar is backed by. These results are indicative of the lack of knowledge among the American population about the money system.

According to 5% of those surveyed, the dollar is backed by government bonds, while 4% say the dollar is backed by oil. The latter can be defended to a certain extent, because the American currency derives its value partly from the fact that most of the world's oil is settled in dollars. It has certainly contributed to the dollarization of the world economy, but it is not strictly speaking what the currency is backed by. Another 23% say they have no idea. In the end, only one in three respondents gave the correct answer, namely the U.S. government.

Unbacked money system

What many Americans also don't know, according to this survey, is how banks work. Almost half of the respondents think that banks hold 100% reserves, but that is incorrect. Banks create new money the moment they make a loan and can do so almost indefinitely. As long as a bank meets the reserve requirements, it can put new money into circulation. In practice, this means that banks hold no more than ten to fifteen percent in reserves. Only one in ten respondents knew how to answer this question correctly.

Many Americans think that banks are just intermediaries between people who save money and people who borrow money. But that has not been the case for a long time. Banks create new bank balances when they grant a loan. In other words, loans create bank balances and not the other way around. As a result, the money supply has increased spectacularly in recent decades and the value of money has fallen as a result. Since 1971, when the peg between the dollar and gold was abandoned, the dollar has lost more than 80% of its value. Measured in gold, the loss of purchasing power is even greater. In 1971, the Gold price $35 per troy ounce, currently it's about $1,500 per troy ounce.

Cash

So Americans know little about how our money system works, but they do think it's important to have access to cash. For example, three-quarters of respondents are against the idea of replacing coins and banknotes with electronic money. Only one in three Americans still uses cash regularly. A similar percentage say they rarely use cash anymore.