1971 — the Nixon Shock

On 15 August 1971, President Richard Nixon went on television and, almost in passing, ended 2,500 years of commodity-backed money. The United States would no longer redeem dollars for gold. It was meant to be “temporary”. It was permanent.

What forced his hand

By 1971 there were far more dollars circulating abroad than the US had gold to back them. Foreign governments — France under de Gaulle most pointedly — began redeeming their dollars for American gold, and the reserves were draining fast. Faced with the vaults emptying, Nixon “closed the gold window”: he simply refused to honour the redemption promise at the heart of Bretton Woods.

“I have directed the Secretary of the Treasury to suspend temporarily the convertibility of the dollar into gold.” — Richard Nixon, 15 August 1971

Why it was a hinge in history

From that day, the world’s money floated free of any physical anchor. The dollar — and, because everything was pegged to it, every major currency — became pure fiat. For the first time, the entire globe ran on money backed by nothing but the promises of governments.

The obvious problem

Cutting the gold link solved the immediate crisis but created a new one: if the dollar was no longer “as good as gold”, why would the world keep holding it? A reserve currency needs a reason to be demanded. The answer the United States engineered was audacious — it re-anchored the dollar not to a metal, but to the one commodity every nation on earth must buy: oil. Enter the petrodollar.