By 1971 the dollar’s position was becoming quite obviously untenable. There was growing realisation within and outside the United States that it was grossly overvalued and that ‘something was bound to break’ in the near future. Uncertainty about the form that the approaching climax would assume when it was reached handicapped investment to some measure throughout the free world. Yet the long-overdue decision to do something would have been deferred even longer if Mr Nixon’s hand had not been forced by the publication of the Reuss Report. Even though the recommendations of his Joint Congressional Subcommittee in favour of suspending the convertibility of the dollar and abandoning the parity of 1934 were not altogether unanimous, they had the immense authority of Congress behind them. The response of the markets to those recommendations left no choice for Mr Nixon, who was no longer in a position to argue that Congress would oppose a departure from the gold parity of $35.
KeywordsCentral Bank Credit Expansion Free World Gold Parity Bretton Wood System
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