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

Currency used to be made out of metals, ie gold/silver and other valuable metals.

Constantly manufacturaing, maintaining, replacing currency as it wears out go kind…old…so the idea was created to use paper money to REPRESENT the gold/silver the government has which it previously would have made into coins.

So a gold-backed dollar/unit is simply a “scrip” that says the government, if you wanted to, could give you actual gold in return for your paper representation and you would be assured of getting said gold.

It is that assurance of a physical replacement metal that makes a currency “backed” by gold/silver.