Part 7/12:
Gold-backed currency, while historically a symbol of stability, presents practical challenges. Pegging the dollar to gold would limit the Federal Reserve’s ability to respond flexibly during economic downturns. It could constrain liquidity injections, necessary during recessions or financial panics, leading to a potential for prolonged downturns or deflation. Additionally, the global gold supply is insufficient to fully back the modern dollar at current scales—an issue that could trigger severe disruptions or require enormous economic sacrifices.