The Nixon Shock, and Now

One evening in the early Fall of 1971, President Nixon went on television and announced without warning that the United States would no longer honor the gold standard. His primary concern in making the address was its timing in relation to the television show Bonanza. Only his closest advisers knew about the decision beforehand, not even the U.S. State Department was informed.

Thus the United States defaulted on its obligations under Bretton Woods, and the era of free floating currencies began.

As Martin Wolf recently noted, countries with large dollar reserves and current account surpluses should take the possibility of default into account :

If (China) and other surplus countries wish to run huge surpluses and accumulate vast financial claims, they should expect defaults. They cannot have both safe foreign assets and huge surpluses.

Capitalism is a ruthless business, and international politics the same. When its self-interest has been impinged upon in the past, Washington has not hesitated in abrogating its international agreements. It will not hesitate to do so in the future, as well.