The Nixon Shock: The 1971 Weekend That Cut the Dollar From Gold

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In August 1971 the British government quietly asked the United States to move $3 billion in gold out of Fort Knox, the financial equivalent of pulling a fire alarm. Under the Bretton Woods system designed by 44 nations in 1944, every dollar could be redeemed for gold at $35 an ounce, a promise that looked safe when America held 574 million ounces. But Vietnam spending, domestic programs, and a hot printing press had left foreign central banks holding more dollars than the vaults could cover. France sent a ship to collect its gold, and West Germany and Switzerland walked away from the system.

This episode reconstructs the secret meeting at Camp David that began on Friday, August 13, where Treasury Secretary John Connally overrode the caution of Fed Chairman Arthur Burns. Two days later Richard Nixon interrupted Bonanza to close the gold window, freeze wages and prices for 90 days, and impose a 10 percent import surcharge. The move was cheered at home and caused panic abroad, and it led to floating exchange rates, the stagflation of the 1970s, and the interest rate playbook central banks use today.

• By 1966 foreign central banks held $14 billion in US currency, while only $3.2 billion in American gold was available to cover those holdings.
• France's finance minister called the arrangement America's exorbitant privilege: other nations had to export real goods to earn dollars the US could simply print.
• The day after the speech the Dow rose 33 points, then its largest single-day gain, and Nixon went on to a landslide win over George McGovern in 1972.
• The Bank of Japan bought $1.3 billion in two days trying to prop up the dollar, and the Smithsonian agreement of December 1971 repegged gold at $38 an ounce before fixed rates collapsed in early 1973.
• Paul Volcker, present at Camp David, later regretted that they abandoned Bretton Woods without building a stable replacement, an uncertainty he tied to Europe's creation of the euro.