> Before 1971, the US Dollar was worth exactly 1/35th troy ounce of gold Sort of. The US gov committed itself legally to redeeming gold at a fixed stated price

> Before 1971, the US Dollar was worth exactly 1/35th troy ounce of gold Sort of. The US gov committed itself legally to redeeming gold at a fixed stated price. It was an untenable position since by 1971 there wasn't anywhere near enough gold to back all of the dollars in existence. A floating gold price would have been higher than the legally defined price, and this created an arbitrage situation whereby one could exchange dollars for gold at the legally defined price, sell gold on an open market for more money, buy dollars, and repeat. This arrangement ends when the US gov runs out of gold or goes bust... or figures out beforehand what the end states are and annuls the law in question, which is what Nixon did. The root of the problem was the increase in dollar money supply without a matched increase in gold reserves, noting that you only have to match narrow (M0) money, rather than broad money from fractional reserve banking (i.e. loans). Why? because most broad money is inaccessible, it's a number in a ledger, to get actual dollars to redeem you have to withdraw that money, and to do that at scale requires banks to claw back loaned money, thus reducing broad money supply right to back nothing, leaving just M0 money (i.e. dollars created directly by the central bank).