Aug. 15, 1971, Richard Nixon ended the Bretton Woods monetary management system- had fixed the dollar to gold -
Monday will see a pivotal anniversary in world financial history — one that won’t inspire many parties or celebrations, but that some economists are arguing U.S. president Barack Obama should give particular attention.
On Aug. 15, 1971, then-president Richard Nixon ended the international Bretton Woods monetary management system, which for decades had fixed the American dollar to gold. Amid today’s economic turmoil, the anniversary will likely see a few commentators calling for a return to the system’s stability.
Last month, magazine publisher Steve Forbes assailed Nixon’s decision, blaming it for a “disastrous decline in U.S. influence around the world,” and arguing it was only a matter of time before the world re-embraced the gold standard. Other commentators have declared the move the most important moment of Nixon’s presidency, never mind Watergate.
Named after the New Hampshire town where Allied leaders created the system in July 1944 as World War Two raged, and international cooperation — and making money serve the ends of peace — was at the top of the agenda. The Bretton Woods Agreements made the gold-fixed U.S. dollar the foundation of the world economy, pinning all other currencies to it and creating a fixed-exchange-rate scheme. Central banks would be allowed to convert their holdings in dollars to gold. The countries represented felt the gold standard would provide automatic fiscal discipline that would spur growth.
(The meeting also resulted in the creation of the International Monetary Fund to help countries in crisis by lending them money — an action that had just as much consequence for the financial system, particularly the globalized world of the last two decades.)
But amid the financial problems of the 1970s, Nixon devalued the dollar against gold bullion, with the idea that floating exchange rates would itself be a source of stability. Free-market economist Milton Friedman had argued for the simplicity and ease of a floating rate in the 1950s, arguing that rates should be allowed to be influenced by speculation.
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