The United States changed its financial system from a gold standard to what is now known as the fiat currency system in 1971. This was a strategic move designed to give the United States more flexibility with its monetary policy.
Rather than pegging the value of the US currency to gold, the US can now create money out of thin air and increase the money supply, which allows it more control over its economy.
In a gold standard, the value of money is tied directly to a set amount of gold. Changes to the economy are more difficult to make with a gold standard because adjustments to the money supply require handing out physical gold, making it hard to quickly increase the amount of money in circulation.
The fiat currency system makes it easier to increase or decrease the money supply to stabilize prices, interest rates and the economy as a whole.
The fiat currency system used in the United States is backed by the full faith and credit of the US government. This means that the currency is accepted as legal tender and its value is sustained through government guarantee.
This system allows the US government to control the money supply and respond quickly to changes in the economy without relying on an underlying physical commodity like gold.
