During the
war, US allies in Europe paid Washington for weapons and military
equipment with gold. As a result, the US collected the world’s
largest gold reserves. In 1938, they reached 13,000 tons. By 1945,
they increased to 17,700 tons, and in 1949 to 21,800 tons.
At the time,
the US dollar became an equivalent for gold because its exchange rate
was tied to the price of gold (one troy ounce of gold was $35). The
situation resulted in the Bretton Woods monetary system which made
the US dollar a global payment tool and a reserve currency.
But in the
1960s, European and Asian countries restored their economies while
the US economy began to slow down. The Bretton Woods system was in
crisis. A heavy blow was dealt by French leader Charles de Gaulle.
During his
presidency, a number of reforms were implemented in France which
boosted the national economy. France issued the new franc, worth 100
old francs and for the first time in many years, France had a stable
currency.
De Gaulle
did not trust the dollar, describing the American currency as green
pieces of paper. In 1965, he said that an international exchange
system should be based on gold, not the dollar. He asked Washington
to exchange $1.5 billion in cash for gold from French reserves.
Washington
started to pressure Paris as its NATO ally. Finally, France withdrew
from NATO military programs. During his visit to the US, de Gaulle
requested that Washington exchange $750 million for gold. The
exchange was made and by the end of 1965, the French held only $800
million in dollars, from the initial $5.5 billion.
Then, the
central banks of Japan, Canada and European countries began
exchanging dollars for gold in the US. In 1971, Germany exchanged $5
billion and withdrew from the Bretton Woods system. By July, US gold
reserves dropped below $10 billion, and on August 15, 1971, President
Nixon issued an order making the dollar inconvertible directly to
gold.
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