The U.S. Dollar Hasn’t Been Linked to Gold for 45 Years. Here’s Why - TIME

The U.S. Dollar Hasn’t Been Linked to Gold for 45 Years. Here’s Why

Posted: 15 Aug 2016 03:00 AM PDT

It was 45 years ago, on Aug. 15, 1971, when President Richard Nixon announced that the decades-old monetary system that had controlled the U.S. dollar—and thus the world’s currency values—for more than three decades just wasn’t working anymore. To most Americans the news, known as the “Nixon shock,” wasn’t actually shocking. War in Vietnam had drained America’s resources, world currency speculation was rampant and 1970 saw the biggest deficit thus far in U.S. history.
“In the past seven years, there has been an average of one international monetary crisis every year,” Nixon said in his speech outlining his new economic policy. “Now who gains from these crises? Not the workingman; not the investor; not the real producers of wealth. The gainers are the international money speculators. Because they thrive on crises, they help to create them. In recent weeks, the speculators have been waging an all-out war on the American dollar. The strength of a nation’s currency is based on the strength of that nation’s economy—and the American economy is by far the strongest in the world. Accordingly, I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators.”

That action? To “suspend temporarily the convertibility of the dollar into gold.”
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When Nixon announced what was coming, TIME explained why the move was on its way:

Washington cut the dollar’s tie to gold by serving notice that it will no longer cash in foreign-held dollars for gold bullion held at Fort Knox. Ever since 1944, when the present monetary system was devised at Bretton Woods, N.H., the dollar has had a special and internationally unique relationship to gold. Technically, gold is the asset by which nations pay their debts to one another. But practically, under the rules of the 118-nation International Monetary Fund, which evolved from the Bretton Woods conference, dollars are actually the medium of exchange through which nations settle those debts. The system was made possible by a promise from the U.S. Treasury to redeem dollars for gold at $35 an ounce. Because of that promise, IMF member nations had been assured that whenever they wanted gold in exchange for the dollars that they held as payment of debts, all they had to do was ask the Treasury Department in Washington.
U.S. gold reserves have dwindled steadily as a result of the nation’s balance of payments deficits in seven out of the last ten years. When Nixon got a look at the figures for the first six months of this year, he knew that drastic action was necessary. Last week the Department of Commerce released those figures: the U.S. ran a record first-half deficit of $11.6 billion. At that rate, the deficit would be $23 billion by year’s end.
Foreigners held three times as many dollars as the U.S. was capable of redeeming in gold, and they were demanding more and more gold because they were losing confidence in the U.S.’s will or ability to whip its economy into order. To prevent a run on Fort Knox, the President thus declared that the nation would no longer exchange dollars for gold.
That meant that the dollar was no longer as good as gold. Thus foreigners had to sell their dollars in money markets for whatever they could get. Since a surfeit of dollars was sloshing around the world already, they could not expect to get much. In effect the dollar had been devalued.

There was, essentially, no going back, despite Nixon’s “temporarily” caveat. In the decades that followed, the U.S. and world economies would rise and fall and rise and fall, without the help of gold. Even decades later, however, the lure of gold still calls to many so-called goldbugs.

Brexit could be delayed till 2019 - Independent

Ministers are reportedly in discussions over a delay in triggering Article 50, the formal process of leaving the European Union, which could see Britain remain a member of the bloc until late 2019.

Theresa May, who is expected by many to trigger the two-year process of leaving the EU in early 2017, could push back the timetable because her new Brexit and international trade departments will not be ready, sources in the City of London have told The Sunday Times. Elections on the continent, including those in France and Germany, could also delay Article 50 of the Libson Treaty being triggered. 

“Ministers are now thinking the trigger could be delayed to autumn 2017,” a source who has reportedly had discussions with two senior ministers told the newspaper. “They don’t have the infrastructure for the people they need to hire,” the source added, in reference to the new Whitehall departments being set up from scratch to handle the Brexit negotiations.

They say they don’t even know the right questions to ask when they finally begin bargaining with Europe,” the source said.

A Downing Street spokesperson said: “The Prime Minister has been clear that a top priority for this government is to deliver the decision of the British people to leave the EU and to make a success of Brexit. The PM has set out the government’s position on Article 50 and has established a new department dedicated to tacking forward the negotiations”. 

Peter Bone, the Conservative MP for Wellingborough who campaigned to leave the EU told The Independent, however, that he would have thought Ms May would want to avoid delaying the process. 

He said: “I just think it’s speculation. I would have thought that was the last thing the Prime Minister would want because she’ll want Brexit done and dusted a long time before the next general election because she’ll want it to be her election. She won’t want it to be clouded by Brexit… I think people who are pro leaving the EU just want to make sure there is a process in place and we have confidence in David [Davis] and Liam [Fox] and the PM. 

It really doesn’t matter as long as we get it right. The worry from people from my perspective, there are a lot of people who don’t want it to happen, there a lot in the establishment that don’t want it it happen. People like myself will be making sure in Parliament that it does happen. I don’t think we’ll really know much more about this until October.

“My guess is that the last thing the Prime Minister would want is for this to be delayed.”

Ms May previously warned that she would not trigger Article 50 this year and has said she would not formally start the process of leaving the bloc until there was a coherent “UK approach” to negotiations. Once the process is triggered then negotiations must be concluded within a two year period and a request for extending the agreement needs the ratification of the 27 other EU member states.

Referring to the upcoming French and German elections, another source told The Sunday Times: “You can’t negotiate when you don’t know who you’re negotiating with.” Sadiq Khan, the London Mayor, has also advocated delaying the process until the autumn of 2017.

“I lost the argument and now it's for them to persuade the EU how we can get the best of both worlds, how it's possible to have access to the single market and not have free movement of labour,” Mr Khan told Sky News.

“Maybe waiting for French and German elections to be out of the way gives the new French president or German chancellor more of a chance for latitude for some of the things that the British public say we need.”