Question

In: Economics

must be 800 words in paragraph form and not word for word from google What explains...

must be 800 words in paragraph form and not word for word from google


What explains the collapse of the gold-exchange standard in the early 1970s?

Solutions

Expert Solution

In the year 1960 the US has held about $19.5 billion the gold reserve which includes about 1.6$ billion in the IMF ( international monetry fund) whichwas sufficient to cover in the foreign dollars about $18.7 billion as outstanding .As the economy of united states prospered, there is a worry in the foreign govt. about the large balance of payment that US would no longer back up the $ in golds .Meanwhile also the Soviet union has become large in producing oil and it was collecting the US in its foreign reserve as the price of oil is in dollars ue to the issue and fear that the US would sieze its bank accounts as a strategy of tactics in the cold war going on between them .The Soviet union strated despositing the dollars in the european bank which is known as eurodollars then . In the year 1970 the stock pile of gold of US continued to fall as the US president Nixon policies of economy created a stagflation .This caused the 2 digit inflation reduced the value of eurodollar and more and more bank started to redeem their gold holdings .Then the Nixon chnaged the relationship of Dllar and gold to thirty eight dolla per ounce and did not allowed the FED to redeem the $ with gold which made the stanard of gold meaningless .Again in 1973 the Govt. of US respriced the value of gold to 42.2 $ per ounce and then seperated the gold and dollar in 1976 .The price of gold reached to 124.8 $

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