Video narration
Until 1971, foreign governments could swap dollars for American gold. Then it stopped. Why? The Bretton Woods system, agreed in 1944, tied the dollar to gold at 35 dollars an ounce. Other currencies were tied to the dollar. Why the dollar? After the war, America held most of the world's gold. Only foreign governments and central banks could swap. Ordinary people couldn't. The catch was built in. A growing world needed more dollars. But the more dollars piled up abroad, the less gold stood behind each one. Economist Robert Triffin pointed to this tension in 1960. Doubts grew. France, among others, turned its dollars into gold, and US gold reserves fell. Spending on the Vietnam War and Great Society programmes added deficits and inflation. On 15 August 1971, President Nixon suspended the swap. He called it temporary. It became permanent. By March 1973, the major currencies were floating. And gold, once fixed at 35 dollars, passed 800 dollars an ounce by January 1980. Any promise to swap money for something else holds only while people believe it can be kept. Full free lesson: Basics of Banking, topic 9, at Malla Banking Academy. Next: Fiat Money and Modern Currency.