Dollar Depreciation and Devaluation

Report Outline
The Gold Reserve Act of 1934
Depreciation of the Dollar in Foreign Exchange
Depreciation of the Dollar in the United States
Effects of Depreciation and Devaluation
Special Focus

The Gold Reserve Act of 1934

By the terms of the Gold Reserve Act of 1934, signed by the President on January 30, an upper limit of 60 per cent for revaluation was added to the previously existing lower limit of 50 per cent for devaluation of the dollar and within these limits the President was given authority, for a period of three years, to vary the gold content of the monetary unit as circumstances warrant. President Roosevelt was expected, within 48 hours of signing the act, to take the first step in devaluation by ordering an initial reduction of 40 per cent in the dollar's gold content. Since 1834 the American dollar has contained 23.22 grains of pure gold. A reduction by 40 per cent would give a new gold dollar of 13.932 grains.

In his monetary message of January 15 in which the new legislation was asked, President Roosevelt said: “Careful study leads me to believe that any revaluation at more than 60 per cent of the present statutory value would not be in the public interest.” On the day this message was sent to Congress the official buying price for foreign gold and newly-mined domestic gold was raised to $34.45 an ounce, which was the equivalent of a 60-cent gold level for the dollar.

Stimulation of long-term investment, both in government and in private securities, by diminishing uncertainty as to the future value of the dollar was given in congressional debate as one of the reasons for adding to the lower limit fixed in the Thomas inflation amendment an upper limit for revaluation of the dollar. Between the upper and lower limits, however, there is room for a capital loss of 16 2–3 per cent, if reduction in the dollar's gold content should proceed by steps from the 60-cent to the 50-cent level, so that the risk of long-term investment is still very considerable. It is probable that the new arrangement of the President's powers over the dollar will prove of greater service in bringing about early agreements with foreign nations for stabilization of the dollar in foreign exchange at the level desired by the administration than in promoting an immediate revival of the long-term capital market.