1971 GMR

Full Name
Global Monetary Reset of 1971
Event Type
Primary Date

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)
    • Allowed large deficit spending
    • Allowed rapid increase in credit
    • Resulted in inflation
  • 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)
    • Cause by significant war spending (Korean war, Vietnam, Cold war) and welfare spending
  • 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