The Nixon Shock

The night the dollar left gold. The world's savings became a promise.

It's a Sunday night, August 15, 1971. Families across America are settling in to watch Bonanza, the most popular show on television. And then the screen cuts away. The President of the United States, Richard Nixon, is at his desk, and in a calm, unremarkable voice he is about to change the meaning of money for every person watching, and for you, decades later, without most of them realizing it happened. So here's the setup. DOCUMENTED: Since 1944, the world had run on the Bretton Woods system. The US dollar was fixed to gold, and every other major currency was fixed to the dollar. Foreign governments held dollars knowing they could, in theory, march up to the US Treasury and trade them for gold at 35 dollars an ounce. It was the anchor the whole global economy was chained to. Your neighbor node fiat-money explains what that anchor was, and what it meant to cut it. But by 1971 the anchor was dragging. The US had printed far more dollars than it held gold to cover, funding the Vietnam War and domestic spending. Foreign governments, France especially, grew nervous and began cashing in their dollars for American gold, draining the reserves. It was, in effect, a slow-motion run on the bank, and the bank was the United States. So here's where it gets decisive. On that August weekend, Nixon secretly gathered his top economic advisers at Camp David. Out of that meeting came a set of moves history now calls the Nixon Shock. DOCUMENTED: He announced a 90-day freeze on wages and prices, a 10 percent tariff on imports, and, the part that echoes loudest, he 'suspended temporarily' the convertibility of the dollar into gold. That word, temporarily, is one of history's great quiet jokes, because the gold window never reopened. Bretton Woods was, for all practical purposes, dead. What makes this node so important is how undramatic it looked and how total its consequences were. Overnight, the dollar became a pure fiat currency, money backed by nothing but the full faith and credit of the US government. Exchange rates that had been fixed began to float, rising and falling on open markets, the system we still live under today. Nixon told Americans it would stabilize the dollar and protect them from international speculators. Critics, then and now, argue it unleashed the inflation of the 1970s and untethered government spending from any hard limit. Both readings are debated, but the event itself is not, this is bedrock, well-documented history, not legend. And it raises the obvious next question. If we stopped redeeming dollars for gold in 1971, then all that gold, the mountain of bullion the whole system had been built on, it never went anywhere. It's still sitting in vaults. Or is it? That is exactly where the story turns uneasy. On the map, nixon-shock is the hinge. It swings backward into fiat-money, the world it created. And it swings forward, downward, into the sealed rooms where the metal was left behind, the gold-vaults.