Eli5 what it means when a currency is said to be backed by gold

Question

I see this all the time, mostly when references are made about the dollar and how it was once backed by gold

In: 164

Answer 1

Holy hell there are a lot of wordy answers here.

TLDR: Take all the weight in gold a nation has, divide it by all the currency that nation creates, and that is how much gold each unit of currency is worth in a gold backed economy.

With that being the case, all trade with that currency is considered the same as trading for that amount of gold instead. So the currency is gold backed.