I'm watching a news report this sunday before getting to sleep. It's about dedollarization. They mentioned Nixon and the comparison people have been making. The summarized history I keep getting is that US was spending way more dollars than they had in gold to back it up, so in '71 some nations esp France started converting their dollar into gold, which scared the US and Nixon was forced to end the convertibility of dollar into gold. Now, what does that even mean? Why did he even have that prerrogative? How can the US unilaterally decide what reserves nations have? Is that still the case? I'm sure Trump would have done it already.
Why was it possible for Nixon to do what he did to save the U.S Dollar and could it be repeated?
byu/AriciaBR inAskEconomics
Posted by AriciaBR
1 Comment
Under [Bretton-Woods](https://en.wikipedia.org/wiki/Bretton_Woods_system), an international exchange rate system developed at the end of WWII and participated in by most large economies, countries were meant to maintain their currencies at a set rate to the US$ and the US to maintain its currency at a set rate to gold. Fixed exchange rate systems get very expensive if the fixed rate was significantly different to the rate implied by supply and demand for that currency over the long-term and in the late 1960s/early 70s, the US government was running deficits and the Federal Reserve was ‘accommodative’ – i.e. printing money. Therefore the amount of gold that the US government was having to buy to meet its obligations was getting increasingly expensive.
Various international agreements were tried to ease the problem, but none were successful, thus Nixon eventually deciding to bite the bullet.
Obviously Nixon’s decision to end gold-convertibility only makes sense in the context of a world where there is gold-convertibility. So no, that couldn’t be done today. And, even if you think Bretton-Woods should be re-estabilised in today’s world, I can think of zero reason why you’d want to re-establish it at a wildly imbalanced US$/gold ratio. Of course, various governments have made stunningly bad economic decisions before, so we can’t rule out this possibility.