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On this very day in 1971, President Richard Nixon announced that U.S. dollars would no longer be redeemable for gold, changing the way the United States did business in what was known as the "Nixon shock." The decision to go off gold spelled the end of the Bretton Woods system of international finance, which had member nations tying their currencies to the dollar. Nixon ended the gold standard, Time reported, "to prevent a run on Fort Knox, which contained only a third of the gold bullion necessary to cover the amount of dollars in foreign hands."
Secretary of the Treasury John Connally on the day that President Richard Nixon announced his New Economic Policy, August 15, 1971. (Nixon Presidential Library) Under the Bretton Woods system, the external values of foreign currencies were fixed in relation to the U.S. dollar, whose value was in turn expressed in gold at the congressionally-set price of $35 per ounce. By the 1960s, a surplus of U.S. dollars caused by foreign aid, military spending, and foreign investment threatened this system, as the United States did not have enough gold to cover the volume of dollars in worldwide circulation at the rate of $35 per ounce; as a result, the dollar was overvalued. Presidents John F. Kennedy and Lyndon B. Johnson adopted a series of measures to support the dollar and sustain Bretton Woods: foreign investment disincentives; restrictions on foreign lending; efforts to stem the official outflow of dollars; international monetary reform; and cooperation with other countries. Nothing worked. Meanwhile, traders in foreign exchange markets, believing that the dollar’s overvaluation would one day compel the U.S. government to devalue it, proved increasingly inclined to sell dollars. This resulted in periodic runs on the dollar.
While Nixon is usually blamed, LBJ played a large role in the gold standard's demise. The received truth about the elimination of the gold standard in the United States (and by extension, the U.S. Dollar being the world’s reserve currency, throughout the rest of the world) is that “Nixon did it”. While it is true that President Nixon, on August 15, 1971, suspended the convertibility of the U.S. Dollar into gold in international transactions, thereby ending the Bretton Woods regime and putting the “final nail in the coffin” of the gold standard, Nixon’s action was pre-ordained by what LBJ had done three and a half years earlier. On March 19, 1968, President Johnson signed a bill eliminating the “gold cover” (i.e., the reserve backing by gold) for Federal Reserve notes. Prior to the removal of the gold cover, each Federal Reserve Bank had been required to hold a gold certificate reserve of not less than 25 percent against its Federal Reserve note liability.
Executive Order 6102 required all persons to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve, in exchange for $20.67 (consumer price index, adjusted value of $391 today) per troy ounce
So this week marks the beginning of the end of the petrodollar and partly why I created this thread so people can hopefully understand what is happening.
People say China owns almost 20,000 tons of gold because they don't export the gold they mine.
Prior to the removal of the gold cover, each Federal Reserve Bank had been required to hold a gold certificate reserve of not less than 25 percent against its Federal Reserve note liability.