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What two events altered American monetary policy in 1971?

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enotechris | College Teacher | (Level 2) Senior Educator

Posted January 13, 2009 at 8:47 AM via web

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What two events altered American monetary policy in 1971?

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ladyvols1 | High School Teacher | (Level 3) Senior Educator

Posted January 13, 2009 at 9:14 AM (Answer #1)

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One of the big events in 1971 that affected the monetary policies of that era was the enormous trade deficit that occured between the US and other countries.  Up until 1971 the United States had always exported more than it imported.  This was no longer the case as of 1971. Taxes were raised on imports to try and balance the deficit. The other major event was the abandoment of the Bretton Woods System.

The Bretton Woods system created an international basis for exchanging one currency for another. It also led to the creation of the International Monetary Fund (IMF).  Each of the 44 nations who joined the discussions contributed a membership fee, of sorts, to fund these institutions; the amount of each contribution designated a country's economic ability and dictated its number of votes. The Bretton Woods system itself collapsed in 1971, when President Richard Nixon severed the link between the dollar and gold — a decision made to prevent a run on Fort Knox, which contained only a third of the gold bullion necessary to cover the amount of dollars in foreign hands. By 1973, most major world economies had allowed their currencies to float freely against the dollar. It was a rocky transition, characterized by plummeting stock prices, skyrocketing oil prices, bank failures and inflation

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