What actually backs your money? From gold coins to fiat dollars to stablecoins

Federal Reserve notes have not been redeemable in gold since 30 January 1934, or in silver since the 1960s, according to the Federal Reserve. Issuers of dollar stablecoins, crypto tokens built to stay worth $1, bought $33bn of US Treasury bills in 2025, a BIS working paper estimates.

Gold and silver are heavy, so instead of carrying the metal around, people found it more convenient to deposit it at banks and trade notes that claimed ownership of it, an IMF explainer from September 2012 says. "Anyone who wanted to could go to the bank and get the precious metal that backs the note." Eventually, in the IMF's words, "the paper claim on the precious metal was delinked from the metal."

In the US, the break came in two steps. The Gold Reserve Act, signed on 30 January 1934, moved all monetary gold to the Treasury. Holders received currency at $35 an ounce, which cut the dollar's gold value to 59% of the $20.67 level set in 1900. Sections 5 and 6 barred the Treasury and financial institutions from redeeming dollars for gold. Americans could no longer cash in their notes. Foreign governments still could.

During the Second World War, the Bretton Woods conference of July 1944 set up the IMF to oversee a system of fixed exchange rates centred on the US dollar and gold. Other currencies were fixed against the dollar, and the dollar was expressed in gold at the congressionally set price of $35 an ounce. By the 1960s, according to the State Department's historians, the US did not have enough gold to cover the dollars circulating worldwide at that rate. On 15 August 1971, Richard Nixon suspended convertibility. "Foreign governments could no longer exchange their dollars for gold; in effect, the international monetary system turned into a fiat one," according to the Federal Reserve's history site.

US records document two steps with Saudi Arabia in 1974. A Joint Commission on Economic Cooperation was announced during Prince Fahd's Washington visit on 8 June 1974. In a confidential embassy cable dated 12 December 1974, US officials reported that the Saudi Arabian Monetary Agency had agreed to an experimental purchase through the Federal Reserve of a substantial additional portion of a December Treasury issue. The Saudi governor accepted a new confidential relationship with the Treasury's borrowing operation and asked that the arrangement be implemented by the Federal Reserve Bank of New York. The same cable reported a Saudi surprise decision, taken on 11 December, to require sales of oil only in dollars.

Saudi Arabia held $141.2bn of US Treasury securities at the end of August 2026, according to the US Treasury's TIC data, against $1,068.3bn for Japan, the largest foreign holder. The dollar made up 58% of disclosed global foreign exchange reserves in 2024, according to a Federal Reserve staff note, against 20% for the euro.

A dollar stablecoin works like an old gold-backed note in one respect: you hand over $1, receive a $1 token, and the issuer promises to swap it back. What sits behind the token is the difference. The same Fed note says about 99% of stablecoin market capitalisation is linked to the dollar. Tether, issuer of the USDT token, reported total reserves of $187.75bn against $183.64bn of liabilities at 30 June 2026, in a point-in-time attestation by BDO, not a full audit. Its largest holding was US Treasury bills, but the reserves also included gold, bitcoin, shares and secured loans.

Circle's USDC reserves sit mainly in Treasury repurchase agreements, Treasury securities and cash. At 31 August 2026, its examination report put USDC in circulation at $73.32bn and reserves at $73.40bn. Most of that, $62.32bn, sat in the Circle Reserve Fund, a government money market fund holding Treasury securities, Treasury repurchase agreements and cash. The rest was mainly cash at regulated financial institutions. Much of the money behind each token ends up in, or is secured by, short-term US government debt. The same BIS working paper estimates that dollar stablecoins' assets exceeded $270bn by December 2025.

Not every stablecoin will fall under these rules, and reserve requirements do not remove the risk that holders cannot redeem at $1 in stress, as USDC's drop to 86 cents in March 2023 showed.

A Federal Reserve staff note calls stablecoins a run-able liability. When Silicon Valley Bank entered resolution on 10 March 2023, Circle said it could not withdraw $3.3bn of USDC reserves held there, around 8% of the total. At its trough, USDC traded at 86 cents to the dollar; the pressure eased once US authorities announced that all SVB depositors would be fully protected. TerraUSD was designed to hold its value without non-crypto reserve assets, according to the FSOC. In May 2022 its price fell to nearly zero. The BIS said in June 2025 that stablecoins fall short of requirements to be the mainstay of the monetary system when set against its three key tests: singleness, elasticity and integrity.

In 1921 Henry Ford proposed financing the government's water-power project at Muscle Shoals with $30m of currency rather than bonds. "Under the currency system the standard would be a certain amount of energy exerted for one hour that would be equal to one dollar," Ford said, according to the New-York Tribune's report of 4 December 1921 on his plan. Thomas Edison backed the plan in remarks that The New York Times published on 6 December 1921.

Storage systems use more electricity for charging than they can supply when discharging, according to the US Energy Information Administration (EIA), and the cost to supply electricity changes minute by minute. On money itself, the BIS wrote in June 2018 that "the essence of good money has always been trust in the stability of its value", and that money must scale with the economy and be provided elastically.