When the Nixon administration came into office in 1969, they realize that the world economy had grown very, very big. It also created enormous economic prosperity in the U.S., all through the ’50s and ’60s. It was part of the phenomenal recovery from the war in Europe and Japan. Everyone was happy to hold it, in large part because they could exchange it for gold if they had any doubts about its value. For the next 25 years, it was a tremendous success. They established the dollar-gold standard to create some predictability and stability for global commerce. Every other currency had a fixed exchange rate to the dollar. In that sense, the dollar was as good as gold. Other central banks could exchange the dollars they held for gold. One of the key elements was that the dollar would be pegged to gold at $35 an ounce. That monetary system was devised in a town in New Hampshire called Bretton Woods, so it was called the Bretton Woods Agreement. Q: What was the context for the decision?Īt the end of the Second World War, there was literally no functioning global economy, so nations got together to create a new trading system and a new monetary system. I thought the story was worth telling now for what it says about how America’s role in the world had to change then and how it’s going to have to change again in the future. They had to do this unilaterally, suddenly, and with enormous force that would leave no doubt in the minds of market makers that they were going to get their way. They made a very tough decision, which I think was the right one. But as I got deeper into the details and understood the rationale, I came to believe it was the only way. When I started the book, I had in mind a major critique of the way they did it.
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