New Study Finds American’s Don’t Really Understand How the Financial System Works
The US dollar was once backed by gold but on April 5, 1933, Franklin D. Roosevelt issued an executive order that outlawed US citizens from the “hoarding of gold coin, gold bullion, and gold certificates within the continental United States”.
Eventually in 1971, President Nixon officially ended the gold standard when he forbid the Federal Reserve from exchanging gold for US dollars.
While this may seem like common knowledge picked up in history class, a new study by crypto mining firm Genesis Mining has found that 29% of American’s still believe the US dollar is backed by gold.
The study titled the “Perceptions of Banking & Money in the US 2019” surveyed 1000 American’s to determine how well they understood how the Federal Reserve, banking, and the greater financial system works in the US. A results were eye opening.
What Is The US dollar Backed By?
Ever since the Gold Standard was scrapped in 1971, the US dollar has been backed solely on the US governments “full faith and credit”. The 5% of respondents that answered bonds and 4% that answered oil were incorrect and just 30% of respondents accurately answered that the US dollar is backed by the government.
How Banking And The Financial System Works
On January 17, 2019, the Fed announced an update to its reserve requirements for banks. All banks holding more $124.2 million in deposits must maintain at least 10% at all times while banks holding between $16.3 million and $124.2 million must hold 3% of all deposits.
When asked the question, does your bank need to hold the exact amount of money that customers deposit at all times? 52% of respondents said no while 26% said yes, and 20% said they do not know.
For those that accurately said no, when asked, what percentage of customer cash deposits do they need to hold in reserves? Just 9% of respondents accurately answered between 1-10% must be held in deposits at all times.
A surprisingly insight came when respondents were asked about how they felt about a digital-only US dollar. When asked the question, should the US government eliminate paper cash and make all money digital? 76% said no while just 13% said yes.
The reason this is surprising is because many consumer spending habits support a trend of using less and less cash. The survey found that 30% of respondents reported that they hardly ever used cash, while 37% reported that used cash just one or two times per week.
The Need For Education On How The Financial System Works
While the US is fortunate enough to not have the types of currency crises we see in countries like Argentina and Venezuela, that doesn’t mean we shouldn't have at least a basic understanding of how the financial system operates. This surveys findings support that in the US, we still have room to grow to make sure everyone truly understand how money actually works.