Socius NewsOn Sunday 15 August 1971, Richard Nixon interrupted the evening television schedule. In one address he suspended the dollar's convertibility into gold, froze every wage and price in the United States for 90 days and put a 10 percent surcharge on imports. The Nixon shock 1971 is the name history gave to that evening. Within fifteen months the Bretton Woods system had collapsed. Within nineteen, every major currency was floating.
The Nixon shock of 1971 was the US decision to stop exchanging dollars for gold at $35 an ounce, ending the fixed exchange rates agreed at Bretton Woods in 1944. It replaced a gold-anchored system with floating currencies, the market you still trade today. This is the seventh episode of our series, after the panic of 1907. It is the one with no crash on the chart. The chart itself is what changed.
July 1944
Bretton Woods conference
730 delegates from 44 nations meet at the Mount Washington Hotel, New Hampshire. The dollar is fixed to gold at $35 an ounce, other currencies to the dollar within a 1 percent band. The IMF and the World Bank are created.
1958
The system goes live
European currencies become convertible. Bretton Woods is fully functional fourteen years after it was signed.
20 October 1960
London gold hits $40
The market price breaks the $35 parity for the first time. A year later eight central banks form the London Gold Pool to sell gold and hold the line.
March 1968
The Gold Pool collapses
The central banks stop defending $35 in the open market. Official and private gold prices split in two.
13 – 15 August 1971
Camp David
Nixon and fifteen advisers, including Connally, Burns, Shultz and Volcker, spend the weekend at Camp David. The first order is to close the gold window.
15 August 1971, evening
The Nixon shock
A televised address suspends gold convertibility, freezes wages and prices for 90 days and taxes imports by 10 percent.
18 December 1971
The Smithsonian Agreement
Gold is repriced to $38. The yen moves from 360 to 308 per dollar, a 16.88 percent revaluation. Bands widen to 2.25 percent. Nixon calls it the most significant monetary agreement in history.
12 – 14 February 1973
Second devaluation, yen floats
The dollar is devalued another 10 percent, to $42 an ounce. Japan floats the yen on 14 February. Within a month nearly all major currencies float.
What was the Bretton Woods system?
In July 1944, with the war still on, 730 delegates from 44 nations met at the Mount Washington Hotel in Bretton Woods, New Hampshire. They were there to avoid a repeat of the 1930s, when countries devalued against each other and trade shrank. The answer was a pegged system. The dollar was fixed to gold at $35 an ounce. Every other currency was fixed to the dollar and allowed to move within a 1 percent band. Two institutions were created to police it, the International Monetary Fund and what is now the World Bank.
The Bretton Woods system had a single anchor. Only the United States promised to convert its currency into metal, and only for foreign governments and central banks. Everybody else held dollars as reserves because dollars were, by treaty, as good as gold. In 1944 that promise was credible: the United States held about three quarters of the world's official gold reserves.
The system took time to switch on. European currencies did not become convertible until 1958. So the fixed-rate world most people picture, the one with no forex market to speak of, lasted thirteen years in full operation, from 1958 to 1971.
Why did Bretton Woods collapse?
The short answer is arithmetic. For the rest of the world to hold dollars as reserves, the United States had to send dollars out, through aid, military spending and investment abroad. The more dollars it sent out, the smaller the gold backing per dollar. By 1961 the dollar claims held abroad already exceeded the US gold stock. Federal Reserve History sums up the trap in one sentence: without additional dollar reserves, the system was unworkable; with additional dollar reserves, the system was unstable.
The market saw it first. On 20 October 1960 the London gold price touched $40 an ounce against an official parity of $35. In November 1961 eight central banks formed the London Gold Pool to sell gold whenever the price drifted above parity. France left, the pool shrank to seven, and in March 1968 it collapsed. From then on there were two gold prices, an official one for governments and a market one for everyone else.
The last straw was US inflation. It ran below 2 percent in early 1965 and reached 6 percent by the end of 1969. A country that prints the reserve currency and inflates it is asking its creditors to accept a devalued asset at a fixed price. By 1971 the United States held about $10 billion of monetary gold against roughly $40 billion of liabilities. Any one large creditor asking for its gold could empty the vault. The promise had become a bluff.
What did the Nixon shock of 1971 actually change?
The weekend of 13 to 15 August 1971, Nixon took fifteen advisers to Camp David, among them Treasury Secretary John Connally, Fed Chairman Arthur Burns, budget director George Shultz and a Treasury under-secretary named Paul Volcker. The first decision was to close the gold window. The address that followed on Sunday evening contained three measures. The United States would suspend temporarily the convertibility of the dollar into gold or other reserve assets. A freeze on all prices and wages would run for 90 days, the first peacetime wage and price controls in US history. And a temporary additional tax of 10 percent would apply to goods imported into the United States.
Two sentences in that speech matter to a trader. The first blamed the market: the gainers, Nixon said, are the international money speculators. The second denied what everyone understood had just happened: let me lay to rest the bugaboo of what is called devaluation. The word temporary was the only part of the announcement that proved false. The gold window never reopened.
$35
official gold price, 1944 – 1971
per troy ounce, fixed at Bretton Woods
$10bn vs $40bn
US monetary gold vs liabilities, 1971
IMF Finance & Development
90 days
wage and price freeze
first peacetime controls in the US
10%
import surcharge
on all dutiable imports
15 months
from the speech to the end of Bretton Woods
Federal Reserve History
What did the Smithsonian Agreement fix, and for how long?
Four months later, on 18 December 1971, the Group of Ten met at the Smithsonian Institution in Washington and tried to put the pegs back. The official gold price rose from $35 to $38, a devaluation of about 8.5 percent. Other countries revalued against the dollar, for a net average dollar devaluation of about 10.7 percent against the major currencies. The yen, pegged at 360 per dollar since 1949, moved to 308, a 16.88 percent revaluation. The bands around each parity widened from 1 percent to 2.25 percent. Nixon called it the most significant monetary agreement in the history of the world.
It lasted fourteen months. The gold market ignored the new official price: about $60 an ounce by mid-1972 and about $90 by early 1973, against a parity of $38. During 1972 speculators pushed the European currencies to the top of their new bands. On 12 February 1973 the United States devalued again, by 10 percent, taking gold to $42 an ounce. Japan floated the yen on 14 February. Within a month nearly all major currencies were floating against the dollar. The Smithsonian Agreement, in the words of Federal Reserve History, was too little, too late.
What did the Nixon shock cost in inflation and gold?
The freeze worked for exactly as long as it lasted. Inflation was practically halted during the 90 days. Controls then ran in three phases until 1974, slowing prices for a while and creating shortages of food and energy. When the controls came off, the inflation came back with interest. US consumer prices rose by more than 12 percent in 1974 and by more than 14 percent in 1980. The period that economists call the Great Inflation, 1965 to 1982, runs through the Nixon shock like a spine. It ended only when Paul Volcker, the same Camp David under-secretary, now Fed chairman, pushed the economy into the 1981 – 82 recession.
Gold tells the same story from the other side. It was fixed at $35 for 27 years. It was repriced to $38, then $42, in the fourteen months after the speech. By early 1973 the market was already paying about $90, more than double the official parity. Once the official price stopped meaning anything, gold became what it is today: a floating asset with a chart.
Gold: official parity vs London market price, 1971 – 1973
US dollars per troy ounce; market values are approximate, as cited by Federal Reserve History
Source: Federal Reserve History, The Smithsonian Agreement (Humpage)
Nixon shock 1971 vs today: what does a $9.6 trillion market owe to one weekend?
Before August 1971 there was no retail forex market because there was almost nothing to trade. A currency that moves 1 percent either side of a fixed rate, and whose central bank sells reserves to keep it there, does not make trends. The floating rates of March 1973 made every exchange rate a price discovered by buyers and sellers, every day, with no promise behind it.
The scale today is the measure of what changed. According to the Bank for International Settlements, foreign exchange turnover reached $9.6 trillion per day in April 2025, up 28 percent from 2022. The dollar was on one side of 89 percent of those trades. The euro accounted for 28.9 percent, the yen 16.8 percent, sterling 10.2 percent. The yen that moved once, by 16.88 percent, on a Saturday in December 1971 now trades every hour of the working week against a dollar that is not backed by anything but the next trade.
Two features of the 1971 episode still show up in your own trade history. The first is the weekend gap. The Nixon shock was announced on a Sunday night, after the markets had closed and before they reopened. Prices did not move through the levels that existed on Friday; they reopened somewhere else. Anyone holding a currency position over that weekend found out what a stop-loss does when there is no price to trigger it. The second is the official denial. Governments and central banks said the peg would hold until the day it did not, in 1971, in 1992 when sterling left the ERM, and in 2015 when the Swiss National Bank removed the franc floor. The lesson is not that pegs break. It is that your journal is the only place where the exposure you carried into the announcement is written down.
“The Nixon shock did not crash a market. It created one. Every floating rate you trade is the residue of a promise the United States stopped keeping on a Sunday night.”
What your journal would have shown
Imagine, on illustrative demo data, a trader in the summer of 1971 who had been short the Deutsche mark against the dollar for most of the year, on the theory that the US government would defend the $35 parity as it had done since 1944. The journal shows 41 trades on that pair between March and August, a 63 percent win rate, and an average result of 0.21R. It also shows that 29 of the 41 positions were held over a weekend, because the weekly range was small and the carry was positive. Monday 16 August 1971 is a single line: -4.8R, no stop filled, exit at the first quoted price. One weekend erased 18 trades of average profit.
That line is not a forecast. It is the kind of line a connected journal writes for you, in R-multiples, without you typing it after a bad night. Socius Trades reads your cTrader or MetaTrader history and shows the drawdown a weekend exposure produced, how many of your positions were open across announcements, and what your expectancy looks like with and without those nights. It never opens or closes a trade. The same report in 1971 would have shown a trader that his edge was 0.21R per trade and his tail was -4.8R per weekend, numbers that do not add up to a strategy. Whether you keep carrying positions into Sunday night is your decision. The 1987 crash taught the same thing in a different decade: the market is allowed to reopen where it likes. You can see your own exposure to that before the next announcement at Socius Trades.
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