1971 GMR
During the Global Monetary Reset of 1971, the US abandoned the gold standard and moved the world to a system of floating exchange rates and fiat currencies
1971 GMR Facts
- US President Nixon temporarily suspended the dollar's convertibility into gold (effectively permanent - still suspended as of 2018)
- This effectively ended the Bretton Woods Agreement
Before the 1971 GMR
- Previously dollars were convertible into gold at $35 per ounce
After the 1971 GMR
- The dollar is no longer convertible into a fixed value of anything
- Allowed all currencies to float against each other
- Allowed politicians and central bankers to print money and spend with abandon (convertability to gold was not holding them back)
- Effectively removed the mechanism that balanced trade deficits over time
- Resulted in some countries having massive and long-sustained tradeeficits
- trade and account balances never get settled (since there is no global reserve asset like gold)
- Allowed domestic monetary polices to avoid financial discipline that was historically imposed by the gold standard
Reasons for the 1971 GMR
- The US printed more dollars that it could back with how much gold it had (at the $35 exchange rate)
- Due to the rise in US paper dollars, foreign countries started to convert their dollars into gold
- This started to quickly drain the US gold supply
- Ending the dollar convertibility to gold stopped this outflow
1971 GMR Impacts
- Removed the primary reason why foreign countries held dollars
- The dollar started to depreciate rapidly against other currencies
- Oil producing countries started to ask for payment in gold instead of dollars
- Created the need for the Petrodollar System