Fifty years ago next month, at a secret weekend meeting at Camp David, President Richard Nixon and his top economic advisors decided to take the U.S. off the gold standard. The dramatic move, announced by the president upon his return to the White House on August 15, 1971, suspended the most fundamental rules of the international monetary system, affecting the prices of all products, commodities and services in world commerce. No policy choice since World War II has done more to shape global exchange, with repercussions still visible in today’s economic and geopolitical rivalries.
Nixon’s decision overturned arrangements created by the U.S. and its wartime allies in 1944 at Bretton Woods, New Hampshire, where Washington had agreed to exchange dollars for gold at a rate of $35 per ounce. Making the dollar convertible into gold, and pegging every other currency to dollars at a fixed rate, was meant to inject stability into international commerce. The hope was to avoid the sort of competitive currency depreciations and rampant tariff increases that had worsened the Great Depression in the 1930s and helped to precipitate a world war.
The dollar-gold link was credible because Uncle Sam owned most of the world’s gold after the war—and because American leaders publicly stressed their commitment to the agreement. In 1963, for example, President John F. Kennedy told Congress that “this nation will maintain the dollar as good as gold…the foundation stone of the free world’s trade and payments system.” President Lyndon Johnson echoed this promise on more than one occasion, as did successive chairmen of the Federal Reserve and secretaries of the Treasury.
Holders of the greenback knew that, in an economic crisis, they had access to an alternative asset that would maintain its value. The gold-dollar link became the basis of world trade and investment. Confidence in its solidity fueled the phenomenal recovery of Japan and Western Europe from wartime devastation and played a big part in the American economic boom of the 1950s and 60s.
Read more:When the U.S. Gave Up Gold