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This naturally led to banknotes backed by gold, which offered more convenience. But as fractional reserve banking emerged, the connection between gold and paper money weakened. Banks began issuing more certificates than the gold they truly held, creating a system of credit expansion that eventually led to systemic fragility.

The Breakdown of the Gold Standard

A pivotal moment came in 1971 when the United States, under President Nixon, formally severed the dollar from gold. This end of the gold standard allowed for unlimited printing of fiat currency. The subsequent decades saw money supply grow exponentially, without any real backing or energy to justify its value.