Previous to 1914, the American citizens and banks were able to legally obtain and hold gold backed money and there were not government restrictions on it. Then in 1914 the Federal Reserve System produced a new type of money, which consisted in the deposits of private members that were held at regional Federal Reserve banks and this was then used as a reserve for vault cash, alongside which were created a new paper currency known as the “Federal Reserve Notes” (FRNs or ferns).

When World War I came to its end, the foreign governments came up with another type of currency in order for the public to attach to and trust that was known as foreign exchange. This was mostly gold convertible United States dollars or British sterling assets that these governments held that were managed by their central banks, and guaranteed in lieu of gold and was used for exchange in order to work out international debts. The agreed upon exchange of paper currency was then considered a reserve on the sites of the central bank, and was supposed to be equal in value to a gold reserve.

In October 1933, President Roosevelt had all the privately held gold in United States confiscated to exchange it for paper money. The only gold items that were not confiscated were those that had recognized special value to collectors as well as gold used in industrial purposes.

It was only until 1974 that congress then once again legalized the private ownership of gold within the United States, however the government did keep somewhat of a gold standard and guaranteed to buy gold at $35 an ounce, which is much under the actual free market price.

The mixture of the gold along with the foreign exchange standard is what was formalized in Bretton Woods. Ever since 1971, the official monetary reserves in the United States have mainly consisted on foreign exchange holdings, and this was obviously not a very good substitute for what used to be the official gold and gold backed convertible money.

If you come to think of it, it is not logical that people would prefer a dollar backed by official claims alone against foreign government assets, in comparison to dollars backed by gold in Fort Knox. When the gold standard came to an end, the confidence people once had on the American dollar flew out the window.

The United States citizens used to trust the system of gold convertible money due to the way it worked since it gave people actual buying power along with psychological importance. The reason that people highly esteem and appreciate gold as something so valuable is because gold is not only useful as a government monetary unit but as a commercial product as well.  The reason that gold backed currency is preferred is due to its natural autonomous constancy and permanence