On the Feasibility of Returning to the Gold Standard

Abstract The gold standard is back in the news following a series of announcements from the Trump Administration indicating that the President was considering candidates for the open positions on the Federal Reserve Board who are sympathetic to the idea of restoring the gold standard. The prospect of returning to such a monetary system raises several important questions that would need to be addressed prior to its implementation. What would the appropriate parity be? How much gold would it require? Is the existing gold stock sufficient to support it? How much would it cost? This paper takes up these questions for the world's largest economies. I argue that the current market price of gold closely approximates the appropriate re-entry parity, and that at this price and at the currently required level of fiat reserves, the stock of above ground gold is large enough to support the adoption of gold redeemability, although it would require a one-time outlay of $3.5 trillion. I also find that the costs of maintaining the gold standard would be $383 billion per year. However, both of these cost estimates decline substantially when using historically-realistic reserve ratios. The principle conclusion of my analysis is that returning to the gold standard would be feasible in the technical sense considered in this paper. There is more than enough gold to support the resumption of redeemability, and the costs of doing so are relatively small. Other, more fundamental margins of feasibility should be considered, however.