Nixon shock

In 1944, representatives of 44 countries reached an international agreement on the gold-dollar standard, called the Bretton Woods System . The United States has pledged to convert dollars into gold at a fixed rate of $ 35 per troy ounce . Only governments and central banks of other countries could convert dollars into gold: by decree No. 6102, it was forbidden for individuals and legal entities in the USA to store and trade gold bullion from 1933 to 1975 ^[4] . The participating countries used dollars as a reserve currency , kept the exchange rate of the national currency to the US dollar stable, and made international payments in dollars.

At first, the Bretton Woods system worked properly: the US economy began to focus on exports to countries affected by World War II (see also the Marshall Plan ), and the high demand for American products (cars, steel, machine tools, etc.) caused high demand for dollars. At the same time, the United States had 574 million ounces of gold - more than half of the world's gold reserves at the end of World War II - and the country's ability to comply with the principles of the Bretton Woods system was not questioned ^[5] .

By the mid-1960s, the restoration of Japan and Western European countries had largely taken place, and the US share in world production fell from 35 percent to 27. Due to the development of European and Asian domestic markets, demand for dollars decreased, exacerbated by an overabundance of this currency in the system as a result of US spending on the Vietnam War , financial assistance to various countries and domestic programs under the Great Society project. The growing US trade deficit has led to the fact that the number of dollars abroad when converted at the official exchange rate exceeded gold reserves within the United States (see also the Triffin Paradox ). By 1966, $ 14 billion was held by foreign central banks, while the US gold reserve was valued at 13.2 billion, of which only 3.2 billion covered foreign exchange liabilities. The rest of the gold provided dollars inside the US. Thus, the United States could not fulfill its obligations to convert dollars into gold at a fixed price even by a quarter of the total volume of foreign reserves of the dollar ^{[6] [7]} . Attempts by the United States and the IMF to reduce the trade deficit by limiting the outflow of dollars abroad, inducing partners to overvalue their currencies and introducing a means of payment not related to the dollar or gold , undertaken during the reign of John F. Kennedy and Lyndon Johnson , had extremely limited success ^{[8 ]} .

In the 1960s, US economic growth slowed down. In January 1970, inflation reached 6.2%, the worst rate for 18 years ^[9] , and in December of that year, unemployment rose to 6.2%, the highest rate for eight years ^[10] . The dissatisfaction of the other members of the Bretton Woods system was constantly growing, because due to the hard currency exchange rate they were forced to constantly increase the money supply in their countries due to inflation in the USA. French Finance Minister Valerie Giscard D'Estaing openly called the system “excessive privilege of the Americans” ^[11] , and already in the mid-1960s, countries began to convert dollars into gold.

In early 1971, Germany exchanged five billion dollars for gold and left the Bretton Woods system ^[12] , while France over the past few years managed to accumulate gold and currency reserves worth $ 500 million ^[13] . On August 5, 1971, the US Congress published a report recommending the devaluation of the dollar in an attempt to save the dollar from "foreign speculators." On August 9, Switzerland left the Bretton Woods system ^[12] .

On August 13, 1971, US President Richard Nixon held a secret meeting in Camp David , attended by 15 of his advisers. Among them were Director of the Office of Management and Budget, George Schulz , Secretary of the Treasury John Connally , his deputy Paul Walker and the head of the US Federal Reserve Arthur Burns .

Connally and Schultz insisted on not linking the dollar to gold and increasing the money supply by printing dollars. Burns objected to this path and recommended devaluing the dollar by raising the price of gold above $ 35 an ounce, but, under strong pressure from Nixon, actually agreed to Connally's offer. Nixon sought to enlist the support of Burns, since the head of the Fed enjoyed high confidence in the country's population. Walker believed that the measures to save the dollar proposed by Burns may be temporary, and a return to the Bretton Woods system is possible, albeit with a more flexible mechanism for changing quotes ^[5] .

The plan proposed by Connally included the following items:

• Freezing prices and wages for 90 days to fight inflation in the country (this measure was introduced for the first time since the Second World War);
• A 10 percent tariff on imported goods in order to force other countries to revise exchange rates, which many participants in the Bretton Woods system have previously refused;
• Small reductions (5%) in financial assistance to foreign countries (to the objection of Assistant Secretary of State Rogers , Connally responded that “if he doesn’t shut up, we’ll force him to cut aid by 15 percent”)
• The US withdrawal from the Bretton Woods system, which Connally presented not as America’s refusal to maintain the gold standard, but as America taking control of the situation.

Two days later, Nixon announced reforms on national television, saying that the new economic plan aims to improve the country's trade balance, slow inflation and reduce unemployment ^{[14] [15]} .

Immediately after Nixon’s Sunday televised address, the reforms were perceived positively by the US population, who believed that the government saved him from foreign speculators and the resulting currency crisis ^{[16] [17]} . The Dow Jones index rose on Monday, August 16, by 33 points - the maximum growth for the day in history at that time, and The New York Times admired Nixon’s decisive actions ^[5] . Abroad, the unilateral actions of the United States were perceived sharply negatively, since Nixon without any warning deprived other countries of the opportunity to convert their dollars into gold, while the value of the dollar was in great question ^[18] .

After several months of negotiations, the Group of Ten countries set new quotes based on a depreciated dollar and secured by the Smithsonian Agreement in December 1971. The agreement, which also provided for the removal of 10% of the import tariff, was described by Nixon as “the most significant monetary agreement in the history of the world,” but the agreed quotes lasted only until February 1973. Speculative market pressure led to a further depreciation of the dollar, forcing countries to revise quotes once again. In March 1973, six G10 European countries agreed to set a dollar-floating rate for their currency, effectively confirming the rejection of the Bretton Woods system ^{[18] [19]} , but the refusal was not officially recorded until 1978, when the Jamaican currency system .

In the long run, Nixon's shock led to stagflation in the United States, reduced the purchasing power of the dollar and exacerbated the American recession of the 1970s ^[19] . The rejection of the connection between the world's main reserve currency and gold ensured for the United States a transition to the issuance of fiat money ^[20] .

• David Frum. How We Got Here: The 70's, the Decade that Brought You Modern Life (for Better Or Worse). - illustrated. - Basic Books, 2000. - 418 p. - ISBN 0465041957 .
• Daniel Yergin, Joseph Stanislaw. The Commanding Heights: The Battle Between Government and the Marketplace that is Remaking the Modern World. - illustrated. - Simon & Schuster, 1998 .-- 457 p. - ISBN 0684829754 .
• Philip Whitehead, Paul Crawshaw. Organizing Neoliberalism: Markets, Privatization and Justice. - illustrated, reprinted. - Anthem Press, 2014 .-- 254 p. - ISBN 9781783083145 .
• Barry Eichengreen . Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International monetary system . - M .: Publishing house of the Gaidar Institute, 2013. - ISBN 978-5-93255-366-4 .

• Speech by Richard Nixon of August 15, 1971