The economic system is one of the driving systems for the development of the country. Thus, the government must constantly take various decisions and measures that will contribute to the improvement of this area. One of the most critical initiatives for the economy of the United States of America was the removal of the dollar from the gold standard by Richard Nixon in 1972. The main reasons were the fight against inflation in the country and handling the global situation with the exchange of the dollar for gold. A study of opinions regarding the exclusion of the dollar from the gold standard will help to gain an understanding of the reasons for this action and answer the question of whether this initiative was successful or had negative consequences.
First of all, it is necessary to understand the main reasons and motives behind the decision regarding the U.S. currency and the gold standard. Monetary policy itself is based on linking the value of the dollar to gold in the country (Costigan et al. 104). The basic concept was that other countries could set the price for the exchange of paper currency for this precious metal (Lioudis). Thus, the basis of this monetary system was that the price of gold set by the states determined the value of its currency. Research stated that the United States of America decided to get rid of the gold standard “to curb inflation and prevent foreign nations from overburdening the system by redeeming their dollars for gold” (Lioudis para. 2). Instead, the fiat system was adopted by the countries, and none of them used this method in the economic system any more.
Sources provide different opinions on the monetary policy of the gold standard. It is worth noting that Theodore Roosevelt’s program played a unique role in this policy. Therefore, “the law required to hold gold equal to 40 percent of the value of the currency and to convert it into gold at a fixed price of $20.67 per ounce of pure gold” (Richardson et al. para. 1). The crisis situation occurred during the bank holidays in 1934 when free gold began to flow out of the Federal Reserve of the United States. President Roosevelt undertook a program that “prohibited exports of gold, the Treasury and financial institutions from converting currency and deposits into gold coins and ingots” (Richardson et al. para. 2). It is noted that it had a negative impact on the value of the dollar against the precious metal.
In the future, the inauguration of the gold purchase plan will also significantly affect the depreciation of the U.S. currency. Source by Richardson et al. Notes that Roosevelt’s initiative was met negatively. For the most part, the leaders of the Federal Reserve did not support the president’s program and considered it unsound and ethically tricky. However, they had to come to terms with these circumstances, and they shifted responsibility to the Treasury.
The article by Forsyth titled “50 Years After Nixon Ended the Gold Standard, Dollar’s Dominance Faces Threat” was of particular help in understanding the consequences and relations in monetary reform regarding the removal of the dollar from the gold standard.” In this article, the author analyzes the consequences of Nixon’s policy and suggests what awaits the American currency in the future. The main consequence of the President’s program was the transition to a free-floating currency (Forsyth). Thus, the dollar has become the primary monetary measure on the world market and has gained a significant advantage over other currencies.
Several circumstances contributed to the introduction of the new financial system. One of the main ones was Nixon’s desire to reduce the unemployment rate in the country and economic development. The initial consequence that followed the removal of the dollar from the gold system was a decrease in its strength and stability (Forsyth). Moreover, inflation played a significant role due to the rising cost of energy. The article, however, points out that “the Treasury initially favored a cheaper dollar to reduce the U.S. trade gap” (Forsyth para. 6). In addition, the authors show that the rejection of linking the value of the U.S. currency to the gold standard and the transition to freely floating currency contributed to a significant strengthening of the dollar in the international arena. Thus, the article under study adheres to the point of view that the detachment of the currency from the connection with the precious metal had a positive impact on its development in the future.
The last article that was considered in this work was “How Nixon and FDR Used “Crises” to Destroy the Dollar’s Links to Gold” by Jonathan Newman. The work stated that “this action finally ended any semblance of a gold standard for the U.S. dollar” (Newman para. 2). Moreover, the author describes the origins and significance of the Bretton Woods system, within which a monetary system was adopted to link the value of the dollar with gold. However, this policy has not shown good effectiveness since it took a sufficiently large number of years to stabilize it. As a consequence of the occurrence of unfavorable conditions that were discussed earlier within the framework of this work, Richard Nixon decided to abandon the gold standard for the dollar.
Further, the article notes the long-term effect that this financial initiative had on the modern economic system of the United States. Therefore, it is emphasized that in response to the crisis, the government took restrictive measures that were supposed to cover “debasement, coin clipping, and money printing for the purpose of surreptitious extraction of wealth from a population” (Newman para. 19). The author of the article comes to the conclusion that the extraction of the dollar from the gold standard has led to disastrous consequences for the country. The main results were an increase in the inflation rate, exacerbated inequality via the Cantillon effects, an increase in the role and control of the government, and financial crises.
In conclusion, this work was engaged in the study of various points of view regarding one of the most essential monetary reforms in the United States of America. This initiative was the removal of the dollar from the gold standard. This economic measure was taken within the framework of the Bretton Woods system and consisted in linking the value of the U.S. currency to the precious metal. The innovation has been functioning since the Second World War, but over time it began to show significant decreases in productivity. Despite Roosevelt’s attempts to transform it, President Nixon decided to limit monetary policy. Sources have different opinions about this initiative. Hence, some consider that the removal of the dollar from the gold standard influenced the strengthening of the currency in the international arena and provided it with significant advantages. On the other hand, it was also highlighted that the authors spoke negatively about the reform, as it caused high inflation and an economic crisis in the country.
Works Cited
Costigan, Thomas, et al. “The US dollar as the global reserve currency: Implications for US hegemony.” World Review of Political Economy, vol. 8, no. 1, 2017, pp. 104-122.
Forsyth, Randall W. “50 Years After Nixon Ended the Gold Standard, Dollar’s Dominance Faces Threat.” Barron’s. 2021. Web.
Lioudis, Nick. “What Is the Gold Standard? Advantages, Alternatives, and History.” Investopedia, 2022. Web.
Newman, Jonathan. “How Nixon and FDR Used “Crises” to Destroy the Dollar’s Links to Gold.” Mises Institute. 2022. Web.
Richardson, Gary, et al. “Roosevelt’s Gold Program.” no date, Federal Reserve History. Web.