Part of The Gold Story, our cited history of gold.
15 August 1971
On a Sunday evening in August 1971, President Richard Nixon interrupted the nation’s television schedule to make an announcement. Among its measures was one that quietly ended an arrangement that had underpinned money for centuries. He suspended the convertibility of the United States dollar into gold. Foreign governments could no longer bring their dollars to America and exchange them for metal (Federal Reserve History).
It was meant to be temporary. It was never reversed. That evening is the moment the modern world was born — the moment money finally, completely, let go of gold.
What actually changed
Before that night, the dollar was a claim on something real. A specific weight of gold stood behind it, at least in principle. After that night, the dollar was backed by nothing but the promise and authority of the government that issued it. Economists call this fiat money — from the Latin, “let it be done.” Money became valuable because the state declared it so, and for no other reason (U.S. Department of State).
Every currency in your pocket today, every pound and dollar and euro, has existed in this state for barely more than fifty years. It is a historical experiment, and it is younger than many of the people reading this.
The long consequence
Since that night, freed from the discipline of metal, the supply of money and debt has expanded in a way that would have been impossible under a gold standard. We will not tell you whether that was right or wrong — economists still argue it fiercely, and honest people disagree. We simply note the fact, and one comparison. Gold cannot be created by announcement. No president can go on television and double the amount of gold in the world. That is the entire difference between the thing that has held value for five thousand years, and the thing that has held it, so far, for fifty.