Yves here. I have to confess to not noting the significance of the August 15 date, as the anniversary of when Richard Nixon ended the Bretton Woods system by taking the US off the gold standard. Overseas, this change was often called the “Nixon shock”.
And please do not get romantic about the gold standard era. First, for you investor types, it did not provide a secure base for currency values. Countries cheated all the time by devaluing their currency in gold terms. Second, if you look at the history of the US, it did not provide for a steady or low rate of inflation. While the gold standard had a deflationary bias (as proven out by the Long Deflation of the late 1800s and the rise of William Jennings Bryan), the US had occasional years of sharp rises in inflation, in the 5% to 14% range, followed the next year by low inflation or deflation. So the gold standard did not produce stability of real economy prices.
Third, as Peter Temin demonstrates persuasively in his book Lessons from the Great Depression, the ultimate cause of the Depression was the campaign by the West after World War I to go back onto the gold standard, which had fallen apart during the Great War.
By Barkley Rosser, Professor of Economics at James Madison University in Harrisonburg, Virginia. Originally published at EconoSpeak
It was also on a Sunday, with financial markets closed, that August 15, 1971, when US President Richard Nixon gave a surprise address to the nation on economic policy. He made three announcements: 1) a 90-day wage-price freeze, 2) a10 percent across the board tariff on all imports, and most importantly 3) the closing of the gold window meaning the US Treasury would no longer pay gold to somebody bringing US dollars to it, the final end of the gold standard. It was not quite the end of the post-WW II Bretton Woods system, established in 1944 at a conference at that New Hampshire town as the mostly fixed exchange rate system was maintained, but that would end in early 1973 when the US dollar was set to float against other major currencies according to market forces, which is what it has done ever since, although with an occasional market intervention here and there. Later in 1973 would come the first OPEC-led oil price shock, and most observers consider that year to be the actual end of that post-WW II economic order, which saw mostly solid growth in the leading economies of Western Europe, North America, and Japan, with a few exceptions, notably the UK.
This move fundamentally reflected something that has continued, a steady decline of the relative economic position of the US in the world economic system, which was a peak at the end of WW II when the Bretton Woods system was put in place. Then the US had half the world’s GDP, and basically had trade surpluses with nearly every nation in the world. There was a dollar shortage, and the US would set up programs such as the Marshall Plan to overcome this and provide financial assistance especially to war-damaged western European economies. But then in the 1950s, while the UK went into a general decline, losing its colonies and the global status of its pound sterling, running chronic large trade deficits that led to several devaluations of the pound, other nations grew rapidly with the Common Market being formed on the European continent and West Germany and France and Italy all growing solidly, as well as Japan, of course.
By the early 1960s many of these nations had turned the trade situation around and were running bilateral surpluses with the US. France’s President de Gaulle emphasized the change of status, along with withdrawing from NATO and developing its independent nuclear “force de frappe,” he also demanded that the US pay France gold to cover the deficits. In practice this meant that in the basement of the New York Federal Reserve Bank somebody went into a room where gold was identified as belonging to the US and then moving it to another room down a hall or two where there was gold identified as belonging to France. August 15, 1971 put an end to this sort of publicity stunt. But rising trade deficits and rising inflation pushed Nixon, who was looking at a reelection campaign the following year (when he took 49 states), to make his moves to put both inflation and trade deficits at least temporarily under control.
It is a curious thing that it is really quite rare for there to be a single day when something happens that leads to a systemic change of the world economic system. I can only think of two days since of comparable significance. One was November 8, 1989 when the Berlin Wall fell, which presaged the collapse of communism in Eastern Europe, the end of the Cold War, and the move into transition of basically the entire Soviet bloc, with the Soviet Union itself splintering into 15 nations at the end of 1991. The paths these nations have taken since have been quite diverse and with widely varying outcomes. But the global economic system was certainly changed.
I think another date of great significance was September 18, 2008, although this was not accompanied by major public announcements. But this was the most dramatic point of the financial crash that dragged the world into the Great Recession. But it led to major changes in how central banks operate around the world, led by the US Fed making a not-publicized decision to bail out the European Central Bank, which in turn was struggling to prop up various major European banks that were getting dragged down in the crash. The Fed did a swap that put over half a trillion USD of European debts on its books, which would be gradually unloaded over the next six months to be replaced by mortgage-backed securities, also something the Fed had not had on its books before. But various other tools were created or brought out then that have remained, such as quantitative easing.
I supposed another possible one would be the day in late 1973 when indeed Saudi Arabia announced its oil embargo of the US during the Yom Kippur War, which was followed by a massive increase in oil prices, the first oil price shock. But it was probably the case that such an increase was coming, even if it might have arrived more gradually without that move. But that move, and the ending of the fixed exchange rate system earlier that year, were arguably the outcome of Nixon’s speech a half century ago today.
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https://wtfhappenedin1971.com/
Health warning: I believe I found this site during my biweekly skim of, ahem, some other site, so there may well be some “stackin’ the phyzz” goldbugtarian agenda buried in there although it isn’t very overt. Caveat emptor. But a goodly collection of ‘inflection point’ graphs nonetheless. Multiple causation anyone?
Multiple causation? Well one stands out. Free Trade. Full-on neoliberal free trade. Much like imperialism, but without the stigma of colonialism. Sort of. FDR wanted to be rid of the restrictions imposed on American trade by the rules (financial) of the British Empire. Imo that’s the reason for WW2. Germany was frustrated. The US was frustrated. Russia was playing self-defense catch-up. France just wanted to play the odds. And the British thought they could eventually gaslight those aggressive Yanks and salvage some of their empire. And the result was pure destruction and chaos requiring vast amounts of money to jump start the world. Leaving the huge problem of how to control the new monster. And here we are. Gold still remains a symbol of stability but nobody elaborates on just how small a “stability” it held – just one small country and it’s trading partners. It was/is really just a precious little fiction.
And here’s a question: Why gold? The earth is full of useful minerals and metals. Useful plants and animals. And precious resources like water. Not to mention sunshine and all the chemical reactions that give us oxygen. Blablablah. So why gold? Why not coprolite? Why not the entire value of the Earth – because that is what we are dealing with. Sustainability means us humans and the earth are in balance. That’s the only accounting we need. Gold obsessions are so silly.
Somehow most everybody in the world (not in North America with Native Americans and really not now with current occupants) figured out that it had all the qualities needed in that it was rare-but not ridiculously rare like aluminum in metal form was say 200 years ago, is easily dividable & best of all-eternal.
Platinum is 30x as rare (and currently worth about half as much), but only Russia ever issued circulating legal tender coins made out of it in the 19th century, no other country really having access to any at the time.
Are you saying the Indigenous Nations “failed” to figure out the so-called “value” of gold, as though this is some kind of “failure” on their part?
No failure on the Native Americans part, it meant nothing to them in the same fashion as most Americans now in terms of matters financial.
I would suggest that “matters financial” itself meant nothing to the Native Nations.
Now, how did they do that? Build whole societies and cultures and civilizations without having to even invent the concept of ” matters financial”?
Maybe the living survivors of these Nations would still tell us if we cared to ask them. Maybe they would regard it as part of their ” Indian mission to the Christians”.
Oh they had money in North America, shells were the conduit of trade…
https://en.wikipedia.org/wiki/Wampum
I remember August 15, 1971 very well. It was the day before I was scheduled to begin active duty service in the Air Force. I watched the news coverage on television, turned to my Father, and said something like “now that is a real exercise in power.” Although I had no real concept of the true significance, I knew it was important.
History texts can be confusing.
In 1933 President Roosevelt took the US off the gold standard,
In 1971 President Nixon took the US off the gold standard.
I’m aware that that we’re talking about two different things here, but I’ve never been clear on why they are different. Can anyone out there provide some enlightenment?
Between 1933 and 1935 Roosevelt took the U.S. off the gold standard with respect to domestic holding of gold. Individual citizens had to exchange their gold coins for paper currency (or bank accounts). Citizens could no longer demand that the Treasury fork over gold coins on demand in exchange for paper currency. However, foreign nations could still exchange dollars for gold at the fixed rate (after 1935) of $35/oz.
What Nixon did in 1971 was to eliminate the fixed exchange rate between the dollar and gold — allowing the dollar to “float” against both gold and other currencies.
Thanks for this clarification. I was also confused about the ending of the gold standard!
More basically, Roosevelt made a unilateral 40 percent devaluation of the dollar against all other currencies, simply by almost doubling the price of gold in dollars, from $20 to $35 an ounce. So the gold standard was still there–for us.
Thank you!
For readers like me who quickly go numb on currency topics while understanding that they are important, here’s a thumbnail history of gold and reserve currencies, gleaned from essays linked on these fine pages (and also Jeff Snider, whom I like):
1. GOLDEN SOVEREIGN [PolicyTensor]
The liberal global economic order underwritten by Great Britain in the late-nineteenth century was firmly centered within the one square mile of the City of London. The cornerstone of the international monetary system was ostensibly the gold standard… with liquidity provided by the pound sterling.
[Mark Blyth] The gold standard, which allowed for international capital mobility without inflation, favored capital over workers. That regime worked from roughly 1870 to World War I.
2. THE GREAT WAR [Adam Tooze] By 1916… everyone in the world needed dollars… access to the last great pool of raw materials, industrial capacity, and labor that was not already mobilized for the war…. the result was that taxpayers in Britain, France, Italy, and Russia ended up owing taxpayers in the United States billions of dollars.
[Yves Smith] World War I and the end of the Gold Standard due to the inability to ship gold greatly diminished the power of the House of Morgan. JP Morgan had been the conduit for foreign capital into the US. He was trusted as a vetter of promising investments. That role became less important and less profitable after the US became a creditor nation.
3. INTERWAR AUSTERITY [PolicyTensor] The United States emerged from the war as the dominant economic power and creditor nation.
In a bid to restore the fortunes of the City of London and resurrect the pre-war global economic and financial order, City bankers launched a major political offensive to return the pound sterling to the gold standard [by 1925]…. Draconian cuts in government borrowing and spending led to a 6% contraction in GDP, with…. manufacturers devastated and wages down 40%…. Cutting back the circulation of sterling put severe deflationary pressure on the world economy.
[Michael Hudson] England thought that it was establishing currency dominance with the Sterling area….. All during the 1930s the surpluses earned by India were basically kept in London. But England ran a deficit with the United States so ultimately the benefit of England’s Sterling area, the financial benefit, was all sent to the United States.
[Tooze] After the war, the Europeans requested debt forgiveness…. a revived Europe would be good for democracy and for business. But not only did the United States refuse to make generous concessions on the war debts; it returned to protectionism… and savagely deflated its economy, sucking gold out of the coffers of central banks around the world. Even if its former associates in the war wanted to pay their war debts, it was virtually impossible for them to do so.
[Hudson] The Allies tried to fund their deficits via German reparations, causing a hyperinflation there that was only solved by Germany borrowing from the United States…. It could only be kept going by the Federal Reserve making interest rates very low here in the United States to promote an outflow of foreign investment to Germany. But those low interest rates also created a stock market boom that crashed in 1929. In the end, the Inter-Ally debts had to be canceled.
4. BRETTON WOODS [Sabri Öncü] The “official” US takeover of the world hegemony from the UK took place at the 1944 Bretton Woods Conference. They established a new international monetary system to ensure that the drivers of the Great Depression: high tariff barriers, competitive currency devaluations, discriminatory trading blocs and the like did not recur.
At the time, the US held about 75% of the world’s gold stock. So, rather than a gold standard, the countries ended up with a dollar standard in which the US would fix the price of gold at $35 per ounce, and the rest of the world would fix their currencies to the dollar.
But, there was a problem in this arrangement. The central banks held the reserve currencies mostly in the form of government bonds. Hence, the US had to pump more dollars into the world financial system by borrowing more from the rest of the world. Trade grew massively post-WWII. Therefore the pool of “reference currency” had to grow, and it did in the form of [offshore] dollar-denominated bonds.
5. DOLLAR HEGEMONY [Tooze] Bretton Woods was supposed to square the stability of fixed exchange rates anchored on the dollar, itself anchored on gold, with limited capital mobility for the useful purposes of trade and investment. But even limited exchanges of European currencies for dollars easily resulted in a run. Britain, the only country to attempt to implement Bretton Woods immediately after the war, suffered a debilitating crisis in 1947 and fell back into reliance on bilateral U.S. funding.
[Hudson] The 1946 British Loan essentially bankrupted England. It forced England to end Imperial Preference, to break up its empire, and free up about 10 billion pounds, all the savings of Argentina and India, countries that had been providing the raw materials for the World War. England had long four-year and five-year capital purchase contracts with these countries that was supposed to fuel a postwar export boom. But these contracts were canceled and went instead to the US. The Empire became absorbed into the Dollar Area.
[Hudson] The arrangements that America created in 1945 were so one-sided that by 1950 it had drawn another five billion dollars’ worth of monetary gold into the United States out of Europe. There was a refugee flight of gold in the 1930s that was followed by a post-war flight out of Europe. British banks and the wealthiest classes began to move their money to the United States.
6. GLOBALIZATION [Tooze] It was not until 1958 that Japan and the European economies were strong enough either to earn dollars through exports to the United States or by trading with those who did. Exchange controls prevented speculative attacks on the dollar.
[Snider] With postwar globalization, more and more dollars were needed outside the US, except more holding dollars outside the US demanded gold conversion (France, mostly)…. nearly draining American gold reserves in the final years of the fifties.
Enter the Gold Pool. In response to massive outflows of gold (again, France) in ’58 and ’59 continuing right on into ’60, advanced economy nations in Europe banded together with the US to manipulate gold and currency values to ensure neither strayed too far from their assigned Bretton Woods relationship.
7. EURODOLLARS [Tooze] Wall Street and its allies in the U.S. Treasury never liked Bretton Woods. They would have preferred the world’s currencies simply to adjust to whatever level markets dictated, and they found allies in London, which, from the 1950s, played host to an offshore market for dollar deposits, the eurodollar…..
[Blyth] The US New Deal had introduced significant financial repression including limits on interest rates that could be offered by banks. In 1955 the British Bank rate had risen significantly above the US limit, and the Midland Bank, a medium-sized merchant bank in London, stumbled on an arbitrage which solved its acute liquidity problem…. Midland’s exchange deals were the first stage of the financial innovation which produced the Eurodollar market. They represented a new source of funds for investment…. Unregulated private funds challenged the official currency pegs. The advent of the Eurodollar market finally allowed the City to regain its autonomy, lost in 1931.
[Snider] When sterling went into crisis, the merchant banks in Britain didn’t have to break stride. They simply switched from using sterling acceptances to Eurodollars in the interbank market of traded bank liabilities. So the Bretton Woods system linking dollars and sterling to gold actually defaulted in 1960, not 1971.
[Blyth] By April 1963, the nine American banks active in the City accounted for about a third of the market. The Eurobond market made the Eurodollars available for international credit, thus creating an alternative international capital market outside any regulatory jurisdiction. This allowed the banks to borrow from one another rather than through discount houses thus creating a new animal, the ‘wholesale inter-bank market’.
The size of the Eurodollar market is so large that it can be considered an independent great power. It also played a key role in the pressure to deregulate onshore finance during the seventies and the early eighties.
8. GUNS AND BUTTER [Hudson] From 1951 through the 1960s and 1970s, the entire U.S. balance of payments deficit was military. The U.S. private sector was exactly in balance. American foreign aid actually made money in balance-of-payments terms.
At first this deficit was welcomed by Europe and by other countries because finally the United States was providing the rest of the world with [gold-backed] dollars that it needed to grow its own central bank reserves.
All paper currency in the United States had to be backed 25 percent by gold. So the gold cover – how much over the 25 percent does America have in free gold to sell, to settle its military deficit? – became worrying to American business [the ‘MIC’ aside] as Vietnam escalated. The industrial labor movement was prowar because it was helping wages rise.
[Blyth] When the Federal Reserve restricted US banks’ access to loans in August 1966, they turned to the Eurodollar market for funds. Germany ran persistent trade surpluses with the US, which led to an accumulation of enormous dollar reserves at the Bundesbank. This became the principal source of Eurodollars for US banks.
This recycling of US dollars began feeding a wage-price spiral already underway due to Vietnam. Without reserve requirements – or any regulation for that matter – the Eurodollar market’s ability to create money was, in principle, unbounded.
[Öncü] In March 1968, a major run on gold on the London Gold Exchange forced the US to request the UK to suspend the London Gold Exchange. An informal agreement was reached with the central banks of Belgium, Germany, Italy, the Netherlands and the UK that they would stop converting their dollar reserves into gold.
Shortly the US Congress repealed the requirement for a gold reserve to back the US dollar. This was actually how the Bretton Woods system ended. What Nixon did in August 1971 was just making it official. The world moved to a form of US Treasury bond standard.
IMO, a concise, cogent article on the Bretton Woods expiry (Briticism alert) is by Nick Beams at the World Socialist Web Site.
https://www.wsws.org/en/articles/2021/08/14/wood-a14.html
To address any dismissal of the above source as a debased outpouring of “Trots” or whatever, any mention of Marxist thought always vividly recalls for me a 10th grade young lady in my vewwwwy upper class high school.
At any mention of policies not aligned with Barry Goldwater or the John Birch Society she would gasp and then predictably sputter and gargle about “filthy socialists” and “godless communists” (yup, it was and still is that kind of community). Then, like a tree filled with howler monkeys, the rest of the gilt edge kidz present would snipe and mutter until the imaginary threat had dispersed.
I also can clearly recall the financial mayhem of the 1960’s, even though the lingering prosperity of post WWII surpluses shielded working students like me.
Years later, a grizzled market vet described to me that era as violently unpredictable. In hindsight, he was right.
Thank you OF. Pretty interesting. My overwhelmed brain is going fuzzy. I’ll blame it on “so much competition, so little time” or stg. like that. We need a financial temperance movement. Sustainability?
Eurodollar-based inflation has always confused me. It’s not like the foreign banks using Eurodollar can engage in fractional reserve lending on dollar currency basis, right? That is, they operate more like S&Ls (100% reserve banks) at least when it comes to the US dollar.
In which case, I’m assuming the multiplier is coming from US banks. They’re borrowing from the euro-dollar market, growing their reserves, and then engaging in fractional reserve lending to inflate the currency. Some of which gets exported back into the Euro-dollar market onto the balance sheets of the same foriegn banks, who then lend it out again to the US banks to add to their reserves again. Just doing a sanity check, do I have that right?
Obviously this spirlaing inflation must have continued on after the Nixon shock and after Nixon ended the Vietnam war in 1973. At least until Volcker nipped it in the bud, with his shocks to the system in 19821/1982.
Warren Mosler says Jimmy Carter nipped inflation in the bud by deregulating natural gas. The Volcker “shocks” were a kind of tragic window dressing, says MMT founder, Mosler.
In any case the shortage of oil caused the inflation in the first place. 1971 was (pre-fracking) U.S. peak oil, and $1.75 would get you a barrel of the stuff. When the Arabs used the “oil weapon” in 1973, responding to the Yom Kippur War, they never shut off more than 3% of the stuff (source: Daniel Yergin’s The Prize). Yet American manufacture and economy were so dependent on oil that the price quadrupled overnight, peaking at $42/bbl in 1982 (about the current inflation-adjusted price). Reagan lucked out because Alaska’s North Slope came online then, and the price retreated to ~$10/bbl.
Not long after the USA went off the gold standard, owning physical stateside was limited to only pre 1933 dated coins (a no-go on bars & ingots though) of any issuing country.
Most Americans thought ownership in any form was illegal, this was simply not true. There was quite a lively trade going on.
In the 1960’s the buy/sell on a pre 1933 $20 gold coin containing 97/100’s of a troy ounce was around $45/50 throughout the decade, to give you an idea.
Where it came in handy in particular was with newly found sources of Au in Switzerland during WW2. What to do to clean up the taint of Nazi plunder?
Initially, the Swiss restruck 20 Franc gold coins with older dates-especially 1935 (see-no way it could have come from some unfortunate Jewish person’s mouth) that contained about 1/5th of a troy ounce, and then covering their tracks a lot better, they supplied the Austrian mint with the wherewithal to make Habsburg era Austrian & Hungarian restrikes dated from 1908 to 1915, specifically for the US market.
A few other countries did the same thing, Turkey issued coins all dated 1923, with a 2 digit number below that date, and all you had to do was add the numbers together to figure out the real date of issuance. (1923 & 38 = 1961)
Once ownership in any form became legal on January 1st 1975, the charade ended.
As far as the other gold standard was concerned, it was limited only to foreign governments who wished to exchange Dollars for gold, with Charles de Gaulle in particular leading the charge in the 1960’s. No average Joe could exchange $’s for Au in such a fashion.
The article contains another–somewhat shocking–reminder. Nixon won 49 states. While Nixon’s actions in Vietnam were without a doubt cold bloodedly horrible, it was arguably the actions of the Democrats in the 1960s that brought on the economic crises that Nixon was dealing with. As Yves has pointed out in the past, Johnson’s guns and butter approach to war making brought on the inflation of the 1970s and perhaps the cancelling of Bretton Woods also (I defer to the more economically literate for the explanation). Thus that period was much like today with elite panic at the rightwing landslide and Pauline Kael famously saying she knew no one who had voted for Nixon (“I hear them out there breathing in the dark”).
Of course the big business Republicans are elites too, but back then they made a populist appeal that was frankly racial (the Silent Majority) while the cultural elite embraced a welfare state populism that was in love with war. In the movie The Post Katharine Graham tut tuts the Vietnam war but she was for it before she was against it. Power corrupts but perhaps in different ways depending on the wielders. Here in the USA we get to choose our poison.
I was in London on August 15, 1971, at the end of a ten-week backpacking trip across Europe and woke up to headlines blaring the news: “NIXON DUMPS GOLD”
All of the banks, except for American Express and National Westminster, immediately halted all dollar/pound foreign exchange. Those two immediately pushed the exchange rate from $2 to $2.50 per pound, then they stopped making exchanges the next day. American students and tourists who needed to exchange their pounds for dollars as they were leaving the country were SOL.
This continued for at least a few days, but I flew home on the 17th, so I don’t know how it went after that.
Not sure about that claim, as the only instances in the last 500 years of devaluation vis a vis paper money hyperinflation before Austria & Germany in the early 1920’s were in France during the French Revolution and in the USA with Continental banknotes in the 1780’s and Confederate currency in the 1860’s.
In reality, the value of gold was rock stable, for instance the first British gold Sovereign was issued in 1489, containing about 1/4 of a troy ounce and worth 1 Pound Sterling. The content and value didn’t really change at all for 450 years, talk about stability!
Same thing in the USA, from 1795 to 1933 the content and value of EVERY last coin issued by various US mints never varied all that much, in fact all USA gold coins dated from 1795 to 1838 contained a smidgen more in gold than the stated face value, as we had so badly screwed things up with Continental currency (the exchange rate in the 1790’s for Continental currency into specie was 1000-1, to give you an idea) that no Federal banknotes were issued until 1861.
I’d guestimate that there have been perhaps 100 instances of hyperinflation worldwide since Weimar in 1923, to emphasize what has transpired since, almost none of it related to gold, by the way.
I’d guestimate that there have been perhaps 100 instances of hyperinflation worldwide since Weimar in 1923
No hyperflation has ever thrust the whole world into a global Depression – which then triggered the rise of Hitler, WWII, and many millions dead – as the attempt to return to the gold standard after WWI did. We got the fiat currencies because the gold standard turned out to be completely, disastrously unworkable.
Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed is good on this.
https://en.wikipedia.org/wiki/Lords_of_Finance
That is a great book, and the real issue why the gold standard went away, was most all of the issuing countries before WW1 were stony broke after the war, and the USA had the lions share. GB valiantly tried to keep keeping on, once they went off the standard it was a fiat accompli, as there would raids on Au backed USA $, game so over.
France & Germany minted tons of gold coins for use before WW1 in commerce, and in the interim period between wars, not 1.
Countries not involved in the war (Netherlands, Switzerland, etc) continued to use gold coins in commerce, for what its worth.
And it wasn’t just gold, the European combatants couldn’t afford to issue silver coins any more for the most part.
These were all Quarter sized coins made out of silver before WW1:
Austria Krone-after the war made out of nickel
Belgium Franc-after the war made out of nickel
France Franc-after the war made out of brass
Germany Mark-after the war made out of aluminum
Great Britain Shilling-after the war made out of 50% silver unlike the pre-war 92.5% silver
Hungary Korona-after the war made out of nickel
Italy Lira-after the war made out of nickel
Netherlands Guilder-no change in composition after the war
Switzerland Franc-no change in composition after the war
All besides the point since fiat should be as inexpensive as practical to avoid violating equal protection under the law in favor of special interests such as PM owners/miners and fiat hoarders.
So the problem with fiat is not that it is inexpensive but that the current system allows it to be created for special interests such as the banks and asset owners and that the use of fiat is largely limited to private banks.
Since the last country to issue for circulation coins made out of pm’s in the 1990’s, it now costs a pittance to produce say a million bucks utilizing only 7 keystrokes compared to pesky Benjamins that set the Feds back a princely 20 Cents or so. It’s incredibly cheap.
Thanks for this historical summary. Seeking to understand what is presently occurring and likely paths forward in the evolving global financial and monetary system. These possibilities include potentially adverse liquidity effects similar to those we saw in mid-Sept 2019 and Mar 2020 due to tightness in the global repo market and leveraged derivatives risks at the large global banks and shadow banks. With Fed QE purchases of size continuing, there’s a shortage of high-quality collateral for repo, even as the value of that collateral drops should rates spike. Believe this is also noteworthy due to the need for repurchase agreement (repo) financing, which is now estimated to comprise around two-thirds of total funding of US Treasury debt issuance.
Question whether the central banks have been trapped into continuing QE and adhering to a policy of keeping rates low due to the effects increasing interest rates would have on the value of the pool of collateral for repo financing and derivatives, and therefore on global liquidity. There appears to me to be a fundamentally destabilizing dynamic in the system.
My recollection from Michael Hudson was that France was hoovering up dollars that US was importing into Vietnam for the war effort; it was French banks operating in Vietnam. So it was France (De Gaulle) in particular that brought the issue to a head by demanding convertibiliy of those dollars for gold.
But did France need to bring it to a head? Presumably they could have just sold their dollars into the marketplace, for importers needing dollars to buy US goods. Or have the French banks in turn operate in the Euro dollar market. Obviously they didn’t do that. Were they not getting good return on those dollars? Or was there some reason that De Gaulle wanted to bring this to a head?
My dim feeling is that De Gaulle was a French Exceptionalist Nationalist ( grandeur of France and stuff) and wanted to do something to put America off balance and reduce American power.
I am sure others will advance better reasons than that.
Oh no. I agree with you. IIRC De Gaulle was a great tweaker of the U.S and did everything he could to keep it off balance. He was very good at wielding power. Even though the current French leaders have tried to claw back some of his influence, IMHO no one since De Gaulle has had the same impact on world affairs for the French.
And not just America. The entire AngloPhone Sphere.
Like this . . .
https://www.youtube.com/watch?v=C0LQBcygNew