The Downfall of the Dollar

H. L. Robinson

Abstract


Marx begins Chapter 2 of his "Critique of Political Economy" as follows: "Gladstone, speaking in a parliamentary debate on Sir Robert Peel's Bank Act of 1844 and 1845, observed that even love has not turned more men into fools than has meditation upon the nature of money." Meditation upon the vicissitudes of the international monetary system has perhaps done as much in our day. The upheaval of August 1971 marked the end of the post-war international monetary system based on gold, fixed international exchange rates and the supremacy of the US dollar. The Smithsonian agreement which followed in December devalued the dollar in terms of gold, acknowledged the official ending of the dollar's convertibility, set new rates of exchange between the dollar and various other currencies and made some technical changes in the system. President Nixon called the agreement "the most significant monetary agreement in the history of the world". The First National City Bank of New York was more realistic; it said the agreement was "but a stopgap solution to an unresolved problem." The agreement did not in fact come to grips with any of the real difficulties; it merely established what was hoped would be an interim truce of monetary order and stability during which solutions to the real difficulties might be negotiated.

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