What does "gilded dollar" mean? Explained in one article

By: DaDa

In New Hampshire, USA, there is a scenic tourist resort - Bretton Woods. The most famous hotel in Bretton Woods is the Mount Washington Hotel. The reason Bretton Woods became famous was a historic conference. In the summer of 1944, not long after the success of the Normandy landings, the world's attention was focused on the smoke-filled battlefields of Europe, while at this time, the Washington Hotel in Bretton Woods quietly became bustling.

A total of 730 delegates from 45 countries gathered together to discuss how to establish a global monetary and financial system. Among the attendees were many regulars in mainstream financial media, including Treasury Secretary Morgenthau, Deputy Secretary White, and Federal Reserve Chairman Eccles, and the most influential among them was the head of the British delegation, Maynard Keynes, whose reputation remained enduring in the economics field for more than 60 years afterward, and who is by far the economist with the greatest influence on government economic policy. U.S. Treasury Deputy Secretary White was also a famous economist. When the U.S. government's plan and Keynes's plan were both put on the agenda, an international conference turned into a war of words between two economists.

Keynes proposed that a supranational international currency should be created to take on this function, which he named the bancor, while White believed this was redundant and that the U.S. dollar could directly take on this function, while other countries' currencies only needed to be pegged to the dollar. Bancor or the dollar - this was the focus of the debate. The purpose of Keynes's plan was objectively to prevent the United States from using the dollar to monopolize leadership of the global economy, while at that time the United States held two-thirds of the world's gold reserves, was the world's largest creditor nation, and had unmatched comprehensive national strength. Europe, after years of war, was on the verge of economic collapse, and the former hegemon Britain had already become the United States' largest debtor nation, so the background of White's plan was America's powerful military and economic strength. The result of the debate between the two economists was still that economic strength decided everything, and White's plan won out.

In July 1944, the Bretton Woods Agreement was introduced, and its most important content was that the currencies of various countries were pegged to the U.S. dollar, with annual exchange rate fluctuations not allowed to exceed 10%, while the U.S. dollar was pegged to gold, and governments of various countries could exchange dollars for gold with the United States at any time at the official rate of 35 dollars per ounce. This was the famous dual peg. In this way, the U.S. dollar became the one and only credit currency in the international market. After World War II, the Bretton Woods system brought postwar financial stability and promoted the cross-border flow of goods and capital. From 1948 to 1976, global trade grew steadily, with an average annual growth rate as high as 7.8%.

The biggest beneficiary of the Bretton Woods system was the United States, because the United States controlled the issuance of the dollar. During economic downturns, it only needed to print more dollars to exchange for goods and services from other countries. Dollar hegemony greatly strengthened the United States' dominant position in the global economy, and at the same time also brought the shadow of dollar crises.

In the 1960s, the economies of Germany and Japan rose, while the U.S. economy was relatively weak and its international balance of payments deteriorated sharply. In order to stimulate the economy, America's money printing presses accelerated. The growth in the money supply of the dollar led to its depreciation, but the official exchange rate for converting dollars into gold did not change, so governments of various countries rushed to convert the dollars held in their foreign exchange reserves into gold, causing a sharp decline in U.S. gold reserves. In October 1961, the first dollar crisis broke out, and a wave of selling dollars and snapping up gold appeared on the international market. The dollar crisis led to a rise in the gold price, and the market exchange rate quickly soared above 40 dollars per ounce. In the summer of 1971, the international market once again set off a frenzy of gold buying, and the French government even took the lead in using bundles of dollars to exchange for gold from the United States. At this point, if the official exchange rate of 35 dollars per ounce continued to be maintained, U.S. gold reserves would inevitably be exhausted. On August 15, 1971, U.S. President Nixon announced the implementation of a new economic policy, the most important item of which was the decoupling of the dollar from gold - historically known as the Nixon Shock. After that, various countries abandoned fixed exchange rates against the dollar one after another and switched to floating exchange rates. In 1973, the Middle East oil crisis broke out, the gold price soared, and the dollar and gold completely broke apart. The dual-peg international monetary system, after completing a course of 27 years, quietly disintegrated.

Alright, that's the end of today's popular science. See you next time.