Why did President Nixon take the U.S. Dollar off the gold standard in 1971?

What effect did going off the gold standard have on the American currency worldwide? Did President Nixon make the right decision? Why? Why not?

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  • 1 decade ago
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    Federal Reserve & there desire to print more money charged at interest when borrowed by the Government & abandoning Gold Standard guarantees inflation.

    Under the gold standard, a government is limited – both legally and practically – as to how much paper money it can print. As recently as the Lyndon Johnson administration, the U.S. could print paper dollars equal only to four times the value of the nation’s gold reserves.

    Under the gold standard, governments that print too much paper money risk runs on their gold reserves. Runs occur as holders of the paper seek to convert to gold before the vaults are empty. A run on the dollar is what happened in the late 1960s, which culminated in President Richard Nixon closing the gold window in 1971.

    "Closing the gold window" is a euphemism for the U.S. defaulting on its promise to other countries to redeem dollars for gold. As an alternative, Nixon could have devalued the dollar and continued to redeem. In effect, he chose a one hundred percent devaluation, a de facto default on the promise to redeem.

    In the 34 years before Nixon closed the gold window, the money supply in the U.S. grew less than two fold. In the 34 years after Nixon’s action, the money supply expanded 13 fold and the Fed Reserve has taken the US gold.

  • 5 years ago

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    RE:

    Why did President Nixon take the U.S. Dollar off the gold standard in 1971?

    What effect did going off the gold standard have on the American currency worldwide? Did President Nixon make the right decision? Why? Why not?

    Source(s): president nixon dollar gold standard 1971: https://shortly.im/bxyMB
  • Anonymous
    4 years ago

    Nixon Gold Standard

  • 7 years ago

    President Richard Nixon is blamed for taking us off the gold standard when in fact, the United States was taken off the gold standard thirty-eight years earlier by President Franklin D. Roosevelt. On April 5, 1933, Roosevelt ordered all gold coins and gold certificates in denominations of more than $100 to be turned in for other money. It required all persons to deliver all gold coin, gold bullion and gold certificates owned by them to the Federal Reserve by May 1 for the set price of $20.67 per ounce. And on June 5, 1933 the United States was officially of the gold standard.

    Fast-forward to August 15, 1971, when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value, thus completely abandoning the gold standard.

    Thanks to President Gerald Ford, when in 1974 he signed legislation that permitted Americans again to own gold bullion.

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  • 7 years ago

    Wrong, wrong and wrong.

    In a nutshell, any country that wants to purchase oil from an oil producing country has to do so in U.S. dollars. This is a long standing agreement within all oil exporting nations, aka OPEC, the Organization of Petroleum Exporting Countries. The UK for example, cannot simply buy oil from Saudi Arabia by exchanging British pounds. Instead, the UK must exchange its pounds for U.S. dollars. The major exception at present is, of course, Iran.

    This means that every country in the world that imports oil—which is the vast majority of the world's nations—has to have immense quantities of dollars in reserve. These dollars of course are not hidden under the proverbial national mattress. They are invested. And because they are U.S. dollars, they are invested in U.S. Treasury bills and other interest bearing securities that can be easily converted to purchase dollar-priced commodities like oil. This is what has allowed the U.S. to run up trillions of dollars of debt: the rest of the world simply buys up that debt in the form of U.S. interest bearing securities.

    The number one American export is U.S. dollars. It is paper currency that is backed up by absolutely nothing, but the rest of the world has been using it to trade with one another and so there is tremendous global demand for our dollars.

    In 2012, the United States ran a trade deficit of about $540,000,000,000 with the rest of the planet. In other words, about half a trillion more dollars left the country than came into the country. These dollars represent the number one "product" that the U.S. exports. We make dollars and exchange them for the things that we need. Major exporting countries (such as Saudi Arabia) take many of those dollars and "invest" them in our debt at ultra-low interest rates. It is this system that makes our massively inflated standard of living possible.

    The United States needed the ability to print money endlessly to accommodate the demand. This was why Nixon removed the gold standard.

  • 7 years ago

    Actually it was because the U.S. had run up such enormous deficits in the late 1960s, especially because of the Vietnam War but to a lesser extent because of Lyndon Johnson's introduction of Medicare and Medicaid, that the value of the U.S. dollar was sliding. As long as the value of the U.S. dollar remained relatively constant the U.S. was able to defend the price of gold at $37 something/ounce (or thereabouts) and there was little difference between this price, i.e. the price the U.S. Treasury was willing to redeem foreign (not domestic!) central banks' dollars with, and the market price of gold. So there was no problem.

    Then when the U.S. government began running up massive deficits in the late 1960s it of course had the effect of downward pressure on the dollar's value, which opened up a widening gap between the ~$37/ounce gold the U.S. was committed to redeeming foreign dollar holdings at versus the growing market price of gold. Here's why it was a problem: a foreign central bank comes to the U.S. Treasury and says "Here, redeem these $5 million in greenbacks for gold" and the U.S. Treasury counts them out $5 million in gold AT $37 something PER OUNCE. The foreign central bank then takes this gold they obtained at the rate of $37/ounce and turns around and resells it on the open market at the going rate for gold which by that time has increased to $40 something or $50 something per ounce, making a large profit. Because the U.S. government was committed to approximately 37 greenbacks equaling one ounce of gold it had set itself up for being a sucker and that's exactly what happened. Foreign central banks came in with dollars, traded them in for gold at $37/ounce and resold them at the steadily climbing market price for gold, making a huge profit which they could then come back with to the U.S. Treasury and trade in for MORE gold, repeating the process. It's easy to see how this creates insurmountable problems when a large and growing gap opened up between the price the U.S. was willing to redeem foreign dollar holdings for gold at versus the actual (then-)current market price for gold. Specie (gold bullion) could not have been flying out of the country faster if it had wings.

    Nixon quickly saw he had two choices, neither of them attractive: either fight for gold at $37/ounce, meaning cut the U.S. federal government's budget with a meat axe in order to reduce the deficit enough to bring the value of the dollar back up enough to take the upward pressure off the market price for gold, thereby shrinking the gap between that and the $37/ounce price enough to make it not worth anyone's while to try to profit from the "gap" I described. Or he could close the gold window, take the U.S. off the last vestiges of the gold standard and be done with it. He chose the latter and ever since then the market price of gold has grown by leaps and bounds and the value of the dollar has steadily declined, most noticeable in the form of inflation. Sometimes worse than others, for example in the early-mid 1970s then again in the late 1970s-early 1980s inflation was terrible.

  • 7 years ago

    Actually it was FDR that took us off the gold standard.

  • Anonymous
    1 decade ago

    Because he was told to by the Corporate Oligarchy. They've been securing their position by making money hand over fist by devaluing the dollar.

  • Anonymous
    1 decade ago

    He made the wrong decision. Gold is now sky high and the dollar ain't worth jack.

  • Anonymous
    1 decade ago

    There wasn't enough gold in the world to back up all the American money. Because of that, it was a good idea.

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