# Nixon Shock 1971 On August 15, 1971, President Richard Nixon unilaterally suspended the convertibility of the US dollar into gold, ending the [[Bretton Woods System]] and fundamentally reshaping the global monetary order. ## What Happened Nixon announced three measures in a televised address: 1. **Suspension of dollar-gold convertibility** — foreign governments could no longer redeem dollars for gold at $35/oz 2. **90-day wage and price freeze** — to combat domestic inflation 3. **10% import surcharge** — to pressure trade partners into revaluing their currencies The gold window was described as "temporarily" closed. It never reopened. ## Why Nixon Did It - US gold reserves had been steadily declining as France, Britain, and others redeemed dollars for physical gold - The US was running its first trade deficit of the 20th century - Vietnam War spending and Great Society programs created persistent fiscal deficits - Speculators were betting against the dollar - By mid-1971, gold coverage of outstanding dollar obligations was dangerously low The fundamental issue was the **Triffin Dilemma**: the world needed dollars for trade liquidity, but producing those dollars required US deficits, which undermined confidence in the dollar's gold backing. ## Immediate Aftermath - The dollar devalued ~8% against gold (to $38/oz), then again in 1973 (to $42.22/oz) - By 1973, all major currencies were floating freely - Gold eventually rose to $850/oz by 1980 - Inflation surged throughout the 1970s, compounded by the oil shocks ## Long-Term Significance The Nixon Shock created a fiat dollar — a currency backed by nothing except the "full faith and credit" of the US government. This raised an existential question: **why would the world continue to use and hold a currency with no commodity backing?** The answer came three years later with the [[Kissinger-Saudi Petrodollar Agreement 1974]]. Oil replaced gold as the de facto anchor of dollar demand. Every nation that needed oil (i.e., all of them) needed dollars. ## Links - [[Petrodollar MOC]] - [[Bretton Woods System]] - [[Kissinger-Saudi Petrodollar Agreement 1974]] - [[Economic Machine]] - [[Gold Investment Thesis]] --- Tags: #macro #economics #history #kp