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

At a very basic level it means that you have a coin that shows a value. Say a 100 Reddit coin. The bank minting that coin promises to give you 100 reddit worth of gold if you ask them to. At a basic level it means you are using gold coins to pay for stuff except the gold stays nice and safe at the bank.

The bank can only issue coins for the gold they have so it’s holding in to it for you.