🌊 How Nixon Broke The Dollar

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History makes the news: In this weekly series, we look at a historical event and how it has shaped the world today. This week’s installment looks at when Nixon abandoned the gold standard, shocking the world and enabling the US to become what it is today. 

By Max Frost

As we documented last Sunday, in 1944, the powers at Bretton Woods created a new system, one in which global currencies would be pegged to the US dollar, and the US dollar would be fixed to gold (“the gold standard”). 

It lasted nearly three decades, anchoring global finance in a gold-backed US dollar and fueling an era of unprecedented growth. But beneath the surface, the system was starting to strain.

And by the late 1960s, the cracks were threatening to break the American economy. 

The US was no longer the economic colossus it had been in 1944. While it had accounted for nearly half of global GDP at Bretton Woods, by the end of the 1960s, that number had fallen to around 27%. Europe and Japan had recovered from the war and were growing fast and exporting heavily. Meanwhile, the US was running large trade deficits and pumping money into the global economy, especially to fund its war in Vietnam and the Great Society programs at home.

Yet under Bretton Woods, the dollar remained pegged to gold at $35 an ounce. Foreign central banks could, in theory, redeem their dollars for gold at any time. And by the end of the 1960s, they started to.

As US inflation rose and trade deficits ballooned, faith in the dollar weakened. Countries like France began demanding gold in exchange for their dollars, going so far as to send a battleship to New York to demand gold from the Fed. 

That move highlighted the tension at the center of Bretton Woods: The US had once held more than 70% of the world’s gold reserves. By 1971, it held below 25%. If countries continued to demand their gold, America risked a total collapse of its gold reserves – and with them, the entire postwar financial order, which relied on US dollars being convertible to gold. 

On the evening of Sunday, August 15, 1971, President Richard Nixon went on national television. What he announced would shock the world.

“I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold,” Nixon said, referring to his Treasury Secretary John Connally.

The so-called “temporary suspension” would never be reversed. The US had unilaterally cut the dollar’s link to gold. Nixon didn’t so much as warn America’s closest allies. Rather, in one fell swoop he killed the Bretton Woods system. 

Like few other speeches, Nixon’s would transform the world, shaping the world we live in today. 

Editor’s Note

Thanks for reading, we hope you enjoyed this morning’s installment. As always, email us here to let us know what you think about today’s reporting.

We got tons of responses to yesterday’s story on censorship, and we’re working on a reply to all.

In the meantime, if you’ve missed any of our latest stories, find them here: 

• Roca’s censorship story

• Silicon Valley’s Tech Utopia

• Inside America’s Secret Bunker System

• Inside the India-Pakistan Crisis

• Inside a Controversial AI Breakthrough

That’s all, enjoy the rest of your weekends.

—Max and Max