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02-05-2008, 02:53 PM
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2,984 posts, read 2,862,773 times
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The significance of August 15, 1971
by Professor von Braun
May 31st, 2006
That was the day that President Nixon closed the gold window, ending the ability of other central banks to convert their dollars into gold at the fixed price of $35.00 per ounce.
It did not end the convertibility of US $'s into gold as the ability of other Central banks to buy gold using their US $ holdings remained. What this event did do was free the US from ever having to provide a redeemable alternative to their paper currency, which in effect was the complete opposite from why it had become the world's reserve currency in the first place. The Bretton Woods agreement saw the adopting of the dollar as the worlds reserve currency precisely for the reason that it was convertible into gold, gold already held by the US and other countries could hold the dollar knowing that this was the case.
No doubt it was the redemption by countries such as France, Italy, Germany, Holland and others that created the reduction in US gold holdings from 20,000 tonnes to 8,300 tonnes that had a hand in Nixon's decision, but the actuality was that the US now had created, by the stroke of a pen, the world's first officially non-redeemable reserve currency, giving it a monopoly on the world's banking system that has lasted to this day.
Needless to say the gold price increased 24 fold over the next few years, from $35 to $850 per ounce. The official benchmark as to the value of the dollar was removed; the unofficial one, the price of gold itself, remained. As we all know, the gold price declined during the 1980's and 1990's as the US managed to maintain the myth that their currency had value, and part of the maintenance of this myth was a declining gold price. Other central banks signed on to the maintenance of this myth, slowly at first, but countries like Japan, which really had no choice as they needed the US as a customer for their industrial manufacturing base, were quite happy to play the game. The Europeans were slower, with the Germans in particular, along with the French, being wary of this newfound ability of the US to run a 'deficit without tears.'
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