Why was the gold-backing of $USD discontinued during the Nixon presidency?

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Why was the gold-backing of $USD discontinued during the Nixon presidency?

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At that time international trade could still exchange dollars for gold, even though the tie in the domestic economy had ended. That meant there were effectively two prices for gold in dollars. One price was the local economy price, the other price was the international price. Because of inflation the local economy price was higher than the international trade price. That meant people wanted to buy gold at the fixed exchange price and the US gold reserves were declining.

Nixon ended the ability to trade dollars for gold for everyone.

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Gold standard did not work with globalization. It promoted countries to horde gold and not engage in importing goods.

The Bretton Woods system was an agreement in 1944 between the US, Canada, Western Europe, Australia and Japan. The goal was to maintain the exchange rate between the different countries by tying the currency to gold in value.

As the biggest economy, the US kind of lead the show and this created problems for other countries. To keep with the Bretton Woods and keep the exchange rate, other countries would have to devaluate their own currency and in the 70s they were not ready to do so.

In May 1971, Germany left the agreement, their economy grew and the US Dollar to German Mark exchange rate dropped by 7.5% in 3 months. A couple of month later, Switzerland left the agreement too. Countries were also exchanging USD to gold, dropping the value of the USD even more. The US economy wasn’t in a good shape at the time either with high inflation and unemployment rate. Nixon eventually broke the agreement.

It was way too expensive. The problem with a gold backed currency is that you need a huge amount of gold. That means some place to store it. The Willy Horton rule says that place is now super desirable to rob, so you have to spend a lot of money guarding it. All this cost, all this work, and 0 return – it’s just not a good thing to do.

Oh yes, and gold is actually valuable, for electrical circuits and jewelry and other decorative items. Having the government horde it means that there is less for the industries that need gold to make their products.