when the USA currency was on the gold standard how did the government create more currency for circulation. How could they buy more gold? For gold?

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when the USA currency was on the gold standard how did the government create more currency for circulation. How could they buy more gold? For gold?

In: Economics

The total money supply was controlled, so money would come out of circulation and be destroyed. The actual amount of gold reserves is tightly held secret so no one would ever know if value is 1:1 or .9:1. Theoretically, as the speculative value of gold increases you could also release more currency. Finally, there’s a deflationary effect of overprinting.

They mined gold in government owned mines, and traded goods with private miners for their gold.

Simplest possible situation, that works all the way back to the bronze age: a gold miner digs up some lumps of gold. He sells them to the government, who gives him gold coins in exchange. This is good for the miner because now he has standard-sized, government-approved gold coins that the local shopkeeper is happy to accept. The government turns their new lumps of gold into new coins, and keeps doing that.

But how does the government get *more* gold? The shopkeeper imports some goods from a neighboring country, and the government puts a tariff on them: the shopkeeper must give the government some gold to get the goods. The government can now keep that gold, or use it to hire soldiers to protect the shopkeeper and the miner, or whatever.

… and eventually the soldiers hired by the government spend their money in the shopkeeper’s shop, and it all goes round again.