"It is not a pretty place with all those men in white socks and red braces," said Mr Smith, "But it is better than any politically-based system."
At the beginning of the 20th century the world was on a gold standard in which paper money could, in principle, be converted into the precious metal. The gold standard returned briefly after the Great War but deserves some of the blame for the Great Depression, as countries such as Britain and France returned to inappropriate pre-war convertibility rates despite their much weakened economies.
The victorious powers did not repeat this mistake after the Second World War. Instead, the Bretton Woods system, centred on the International Monetary Fund, was based on a US dollar standard and pegged exchange rates. The US government pledged to convert other dollars into gold on request, at a fixed price. Other countries held gold in their reserves, selling it when their currencies came under pressure on the foreign exchanges.
By the early 1970s the system had come under intolerable strain because of inflation and America's need to finance the Vietnam War. With too many dollars around, other countries started to make unwelcome demands to convert their dollars into gold, cheap at the guaranteed $35 an ounce. On 15 August 1971 the US suspended convertibility.
The gold price shot up with other commodities in the 1970s to a peak of more than $700 an ounce, but its price has trended down since 1980. Gold has since played a diminishing role in monetary management. The IMF made its first sale of gold reserves in 1976, selling a third of the total to set up a trust fund whose income would be used to finance developing countries. In 1979 Canada became the first country to start replacing the gold in its reserves.
World reserves now stand at just under 900 million troy ounces, the vast bulk held by industrialised countries.