Question

What caused the demise of Bretton Woods system? What was the role of US economic policies in that demise? Why was the "Gold window" closed in 1971?

Answer 1

While the dollar had struggled throughout most of the 1960s within the parity established at Bretton Woods, this crisis marked the breakdown of the system. An attempt to revive the fixed exchange rates failed, and by March 1973 the major currencies began to float against each other.

Because the Bretton Woods parities, which were declared in the 1940s, had undervalued the price of gold, gold production would be insufficient to provide the resources to finance the growth of global trade. The shortfall would be met by capital outflows from the US, manifest in its balance of payments deficit.

The Nixon shock was a series of economic measures undertaken by United States President Richard Nixon in 1971, the most significant of which was the unilateral cancellation of the direct international convertibility of the United States dollar to gold.

Today in 1971: President Nixon Closes the Gold Window. 45 years ago today, on August 15, 1971, President Richard Nixon officially closed the gold window. ... Due to the Federal Reserve's inflationary monetary policy during the 1960s, foreign governments began to redeem more and more dollars for gold.