Gold Clause

Gold Clause

A clause in a contract allowing payment to be made in gold instead of currency. A gold clause is placed in a contract if it is suspected that payment in currency may be rendered impossible due to inflation, war or some other reason. Gold clauses were common at the first part of the 20th century, but were illegal in the United States between 1934 and 1977.
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Timberlake closes with a recount of the Gold Clause Cases, which centered on the Franklin Roosevelt administration's outlawing of private gold holdings.
This harkens once again to the so-called Gold Clause cases decided by the Supreme Court.
But standing doctrine has developed considerably since the Gold Clause cases.
The Federal Reserve rationalized the major reduction of the money supply during the early 1930s as necessary to protect the gold clause.
Congress undid the final link between the gold standard and the domestic economy when it abrogated the gold clause in government and private contracts.
The issue quickly reached the Supreme Court in 1934 and gave rise to an important and controversial set of decisions known as the Gold Clause Cases (see Holzer 1980).
McReynolds noted that the intention of the gold clause was "to protect against a depreciation of the currency and against the discharge of the obligation by payment of less than that prescribed.
Nonetheless, Roosevelt proceeded to promote an exceedingly unsound currency--with the seizure of most Americans' gold, devaluation of gold coinage, removal of domestic redemption of Federal Reserve Notes in gold, and the nullification of gold clauses in both public and private contracts (Vieira 2002: 867-1235).
To be sure, Americans' right to own gold was restored in 1973, gold clauses were once again permitted for private citizens in 1978, and starting in 1985 the U.
Second, due to the gold clauses that occurred in most bond indentures, coupon and principal payments were stipulated in gold, which helped to integrate these securities into the international markets.
If the gold clauses had been enforced, the debt burden of borrowers would have increased by the extent of the devaluation, 69 percent.
Gold clauses in contracts might offer some protection for traders.