1971 GMR

1971 GMR

Global Monetary Reset of 1971
Monetary Event

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

More About 1971 GMR

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 trade deficits
    • 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
    • trade imbalanced no longer resulted in loss of gold & domestic deflation

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