Nixon Shock

The Nixon Shock was a series of economic measures taken by United States President Richard Nixon in August 1971. These measures included the unilateral devaluation of the United States dollar against gold, the imposition of a 90-day freeze on all wages and prices, and the suspension of convertibility of the dollar into gold.

The Nixon Shock was a major turning point in the history of the international monetary system. It marked the end of the Bretton Woods system of fixed exchange rates, which had been in place since 1944. The Nixon Shock also led to a period of high inflation and economic uncertainty in the United States and around the world.

The Bretton Woods system was based on the principle of fixed exchange rates. Under this system, the value of each major currency was fixed in terms of gold. This system was designed to promote international trade and investment by providing a stable and predictable environment for currency exchange.

The Nixon Shock devalued the dollar against gold by 7.8%. This meant that it took more dollars to buy an ounce of gold. The devaluation of the dollar made American goods more expensive for foreign buyers, and it led to a decline in the demand for dollars.

The Nixon Shock also included a 90-day freeze on all wages and prices. This was intended to prevent inflation from rising in the wake of the devaluation of the dollar. However, the freeze was not effective in controlling inflation, and prices continued to rise.

The Nixon Shock finally included the suspension of convertibility of the dollar into gold. This meant that the United States government would no longer redeem dollars for gold. The suspension of convertibility effectively ended the Bretton Woods system of fixed exchange rates.

The Nixon Shock had a significant impact on the international monetary system. It led to a period of high inflation and economic uncertainty in the United States and around the world. The Nixon Shock also marked the end of the Bretton Woods system of fixed exchange rates, which had been in place since 1944.