21st Century Gold Standard

August 15th marks the 50 year anniversary of the Nixon shock. In his public statement of August 15th 1971, Nixon supended “temporarily” the convertibility of dollars into gold. This event marked the beginning of the fiat money system as we know it. More importantly it has achieved none of the stability or confidence objectives as initially intended. In fact, one can argue that this unilateral move was the greatest gold heist in history and marked the decline of the United states as a monetary power or at least the gradual death of the US Dollar.

What got us there?

After the end of the second world war, the global economy became stagnant. Nations got together to devise a new form of monetary system called the Bretton Woods Agreement. One of the key elements was that the dollar would be pegged to gold at $35 an ounce (Gold Standard). Other central banks could exchange the dollars they held for gold. In that sense, the dollar was as good as gold. Every other currency had a fixed exchange rate to the dollar.

Initially, the system was successful. When the Nixon administration came into office in 1969, they realized that the world economy has changed completely. Everybody wanted dollars, so the Federal Reserve was printing lots of it. As a result, there were four times as many dollars in circulation as there was gold in reserves. The rate for an ounce of gold was good in 1944, but the printing press of the federal reserve, government deficits as well as the trade balance led the USA to print currency without having the backing by the precious metal it corresponded too.


Since Nixon suspended the us gold standard, the world has suffered from 12 financial crises, beginning with the oil shock of 1973 and culminating in the financial crisis of 2008–09 followed by the European debt crisis.

Since the end of “hard money”, the world has seen a staggering trend of rising global debts, hitting records year after year. With fractional reserve banking allowing banks to printing more money while only keeping a fraction of deposits in reserves, the entire fiat system has become increasingly fragile. With fiat money, there is virtually no limit as to how much central banks can print out of thin air. This is impossible with a gold standard as one cannot simply print gold. The gold standard would have forced orthodoxy for monetary policy and deficits.

Rampant inflation has slowly eroded the wealth of the entire world’s population. In perspective, even if the parity of the imperfect Bretton woods standard would have remained 35$ per ounce, a barrel of oil would be costing 1.35$ instead of 69$ and a share of the S&P 500 index would cost 87$ instead of 4444$.

Perhaps the best quote predicating the failure of the current system is found in the public statement of Charles de Gaule:

The AgAu Money System

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