Richard Nixon’s presidency is known for a lot of things, but lost amid Watergate and the Vietnam War is one of his most influential decisions as a president, which happened 44 years ago in August. On August 15th in 1971, Nixon cancelled the direct convertibility of the US Dollar into gold, effectively ending the gold standard for the United States and most of the world. While it may not seem like there have been any lasting effects of this move, if you dig a little deeper, you can see the ripple effects clearly.
The Gold Standard began in 1944, thanks to the Bretton Woods agreement, named after the city in New Hampshire where many of the world leaders met to formalize how nations dealt with currency exchange on a global level. Things changed in 1971 when foreign pressures demanded the US Dollar to be exchanged gold. Nixon acted against this “price gouging” by ordering Treasury Secretary, John Connally, to suspend this exchange practice. The move was initially supposed to be temporary, but Richard Nixon never re-opened the dollar-for-gold exchange, which was partly responsible for the conversion to flat currencies, which were determined by national governments and their national banks.
Not long after this decision, the Oil Crisis hit in 1973, along with 11 other financial crises since the move away from the gold standard. In contrast, between the Bretton Woods agreement and 1967, there was only one financial crisis and that involved the British Pound. During this time, there were also no bank failures or Wall Street disasters. History tends to repeat itself. Nixon believed that our economy could sustain itself indefinitely. This sort of attitude mirrors the same sentiment seen in the years leading up to the Great Depression.
Nixon’s decision to move away from the Gold Standard has bigger ripple effects than what appears on the surface. When it comes to the economy, it takes a little digging before the full story develops.