Historical Changes in Gold and Global Financial System

Historical Changes in Gold and Global Financial System

Basic Understanding of Gold and Financial System

Bretton Woods Agreement and System in 1944

The Bretton Woods Agreement was negotiated in July 1944 to establish a new international monetary system.

The Bretton Woods System required a currency peg to the US Dollar which was in turn pegged to the price of gold. The agreement created a collective international currency exchange regime that lasted from the mid-1940s to the early 1970s.

The Two World Wars and the Great Depression wreaked havoc on the gold standard and world financial markets.

After decades of war and conflict, world leaders came together under the Bretton Woods Agreement. This system created a gold exchange standard where the price of gold was fixed to the US Dollar. The System made the United States very powerful in the world’s markets.

The US Dollar was chosen for the Bretton Woods system because the United States were the world’s strongest economy coming out of the Second World War. Unlike previously strong European nations, the United States did not have to repair infrastructure or fix towns that had been bombarded throughout the war.

The day the price of gold was pegged to the U.S. dollar was one of the most important points of the US history because it helped make the United States the global superpower as it is today.

Vietnam War in 1955-1985

The Gold Standard ended with the Vietnam War.

The Vietnam War lasted from November 1st, 1955 until April 30th, 1975. As seen by the dates this was part of the Cold War era. The fight was basically between North Vietnam who was supported by the Vietnamese government and South Vietnam who was supported by the United States. It was overall an anti-communist vs. communist battle.

In 1944, Gold was fixed at $35 per ounce. In the early 1970s, the Vietnam War caused the gold exchange standard to collapse. America’s budget was in ruin and in 1971, President Nixon suddenly decided to end the Bretton Woods system with a moment known in history as the Nixon Shock.

After 1971, the price of gold skyrocketed to record-high levels.

Modern Time - 21st Century

As of 2019, no countries in the world use a gold standard. In other words, no currency in the world is backed by gold.

The last major currency to use a gold standard was the Swiss Franc, which used a 40% gold reserve until the year 2000.

Of course, that doesn’t mean that countries have sold all their gold or that their currencies are based on nothing. Most countries in the world maintain large gold reserves in order to defend their currency against possible future emergencies.