Few dates in economic history classify as turning points but one of them was 15 August 1971 when Richard Nixon went on TV to announce that the US would no longer exchange dollars held by foreign governments for gold.
Nixon’s announcement 50 years ago this week had lasting ramifications. It was a statement to the world that the US was too weak to continue anchoring the global monetary system as it had done for the past quarter of a century. It would remain the world’s biggest and most important economy, but the days when it was uniquely dominant were at an end.
Shock waves from Washington’s decision to break the link with gold have rippled down the decades. The creation of the euro, the hollowing out of US manufacturing, the arrival of cryptocurrencies and the ability of central banks to print seemingly unlimited quantities of money can all be traced back to August 1971.
In truth, Nixon had little choice because the system of international economic management established at Bretton Woods in 1944 was breaking down. Under the agreement, currencies such as the pound, the French franc and the German mark were linked to the dollar at a fixed exchange rate. To ensure the stability of the system, the dollar was fixed to gold at a rate of $35 an ounce. Any country that built up a stock of dollars by running a trade surplus with the US could exchange them for gold.