Required reading for this post:
- The IMF is formed after the gold standard is abandoned
- Two-tier system for valuing gold introduced in 1968
The economic crisis in the United States worsened as the balance of payments deficit persisted. Therefore, on Aug. 16, 1971, President Nixon announced the United States was freeing the dollar for devaluation against other currencies by suspending the full convertibility of foreign-held dollars into gold. This inconvertibility meant no foreign government could convert dollars into Treasury-held gold; thus, the tie between the dollar and gold was severed.
The devaluation of the dollar occurred Dec. 18, 1971, and was accomplished by raising the official price of gold from $35 to $38 an ounce. Other currencies were juggled up or down into a new pattern of exchange rates. Throughout 1972 the price of gold on the free market climbed until it leveled off in December at $61 an ounce.
Economists and monetary authorities almost unanimously regarded the 8.57 percent devaluation of the dollar as inadequate. And, since the dollar was no longer exchangeable for gold, it made little difference that the price at which the Treasury did not sell gold was raised from $35 to $38 an ounce. Another devaluation was forced, then, in February 1973. Treasury Secretary George Shultz announced that the dollar would be devalued 10 percent against SDRs (and so against gold) with the official monetary price of gold raised from $38 to $42.22 an ounce.
The price of gold on the London market took a sharp leap upward, breaking through the $100 an ounce barrier on May 14, 1973. Official stocks of gold were virtually frozen because no central bank would give up gold at the official price of $42.22 an ounce when the free market price had climbed so far above it.
The above is an excerpt from the eighth edition of the Coin World Almanac , published by Amos Media Company in 2011.