1971 Nixon Shock (End of Gold Standard)

The 1971 Nixon Shock ended a 27-year international monetary arrangement and reshaped every subsequent asset class. Under Bretton Woods, foreign central banks could convert dollars to gold at $35 per ounce. By 1971, US gold reserves had fallen from 20,000 tonnes to 8,100 tonnes as European central banks, led by France under de Gaulle, redeemed dollars for bullion. The system was mathematically bankrupt; US dollar liabilities to foreigners vastly exceeded the gold backing. On Sunday August 15, 1971, Nixon announced three measures together: suspension of dollar-gold convertibility, a 10% import surcharge, and a 90-day wage and price freeze. Markets reopened Monday with the Dow up 32 points. But the consequences unfolded across a decade. The Smithsonian Agreement of December 1971 attempted to re-peg at $38/oz, it collapsed within 14 months. By March 1973, all major currencies were floating freely. The decade that followed was the most inflationary in US peacetime history. With no external discipline, the Fed accommodated oil shocks, fiscal expansion, and wage-price spirals. Gold rose from $35 to $850 by 1980. Oil rose from $3 to $39. The dollar lost two-thirds of its purchasing power. Stagflation, unemployment above 7% with inflation above 10%, defined the regime until Volcker broke the spiral. The durable lesson is about monetary anchors. Bretton Woods imposed external discipline on the Fed through gold convertibility. The post-1971 system relies on institutional credibility, inflation targeting, and the reserve currency's self-reinforcing demand. Every modern macro question, gold as store of value, Fed credibility, dollar hegemony, central bank digital currencies, traces back to the choice Nixon made that August Sunday.