Suspended Temporarily

Fort Knox turns up in films because of what it is meant to prove. There is a building in Kentucky, there is gold inside it, and the money in your wallet is worth something because of the arrangement between those two facts. By the summer of 1971 the arrangement had stopped adding up. Foreign governments were sitting on close to fifty billion dollars they were entitled to bring to the American Treasury and swap for metal, and the American gold stock was worth about ten billion.

Everyone involved could do that sum. What was left to decide was how the promise would be withdrawn, and who would be in the room when it was.

Three days at Camp David

On Friday 13 August 1971, at a quarter past three in the afternoon, Richard Nixon sat down with his economic advisers at Camp David. His daily diary lists the Treasury Secretary John Connally, the Federal Reserve chairman Arthur Burns, Paul Volcker from the Treasury, the budget director George Shultz, Paul McCracken, Herbert Stein, Peter Peterson, Bob Haldeman, John Ehrlichman and the speechwriter William Safire. The camp guest book adds Caspar Weinberger, Arnold Weber, Kenneth Dam, Michael Bradfield and Larry Higby. They came down at half past eleven on Sunday morning.

The Secretary of State was not there, and neither was the national security adviser. Henry Kissinger wrote later that a decision of major foreign policy importance had been taken without either of them being consulted.

What the weekend produced had four parts: a ninety day freeze on wages and prices, a ten per cent tax on imports, a ten per cent cut in foreign aid, and the end of the dollar's convertibility into gold.

What the dollar had promised

The price had been fixed at thirty five dollars a fine ounce since 1934. At Bretton Woods in 1944 the rest of the system was hung on that number. Other countries pegged their currencies to the dollar, the dollar alone was pegged to gold, and a foreign central bank holding more dollars than it wanted could take them to the American Treasury and have metal instead. No ordinary person could do this. It was a promise between governments.

It held while the world wanted dollars, which it badly did while Europe and Japan were rebuilding. The trap, named at the time by the economist Robert Triffin, was that America could only supply the world with dollars by running deficits, and every dollar that went out was another claim on a pile of gold that was not getting any bigger. Do that for twenty years and the claims overtake the metal. By the late sixties they had, by roughly five to one.

The request that did not do it

The version that hardened afterwards is that Britain demanded three billion dollars of American gold on the Friday morning and the window slammed shut that weekend. It is a tidy story and it is wrong twice over.

What Britain asked for was partial cover for its dollar holdings in the event that the dollar was devalued. That is insurance against a fall in value, not a demand for the metal. The request was garbled somewhere on its way across, and officials in Washington were told the British wanted to exchange three billion dollars for gold, which is frightening in exactly the way a bank run is frightening. It was not what had been asked. The Camp David meeting had also been arranged the day before it arrived.

Volcker, who was in the room, was direct about it afterwards. "One story circulated later that the British request precipitated our decision to go off gold. That was not true. Demand for gold had been building from other, smaller countries. The momentum toward the decision was by that time, in my judgment, unstoppable." He then added the half that usually gets left out. Those last requests for gold and guarantees were useful, he said, because nobody could now argue that the United States had reached its decision frivolously.

Sunday night

Nixon went on television at nine in the evening on 15 August. Haldeman's diary records that he decided not to release the text until after it had been delivered, which is not how a President normally announces an economic programme.

He gave the country a villain first. "Now who gains from these crises? Not the workingman; not the investor; not the real producers of wealth. The gainers are the international money speculators. Because they thrive on crises, they help to create them."

Then the sentence itself. "I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States."

Then he told the viewer what it meant for them. "If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today."

That is true, and it is also beside the point, because the promise being withdrawn had never been made to the people watching.

What temporarily meant

Four months later, on 18 December 1971, the finance ministers of the ten largest industrial economies met at the Smithsonian Institution in Washington and put the dollar at thirty eight dollars an ounce, a devaluation of about eight and a half per cent, with wider bands for currencies to move about in. Convertibility was not restored. Nixon called the result the most significant monetary agreement in the history of the world. The import tax came off two days later.

The arrangement lasted fifteen months. On 12 February 1973 the United States devalued again, to forty two dollars an ounce, and within a month nearly every major currency was floating against the dollar. They have been floating ever since.

The Treasury still publishes its gold report every month. At the end of July it held 261,498,926 fine troy ounces, of which 147,341,858 sit at Fort Knox, and the books carry all of it at 42.2222 dollars an ounce, the price set in 1973. That comes to about eleven billion dollars, a shade more than the ten billion that was not enough in 1971. The suspension is now in its fifty fifth year.

Sources

• The American Presidency Project, "Address to the Nation Outlining a New Economic Policy: The Challenge of Peace" (the passage on international money speculators; the sentence directing Connally to suspend convertibility temporarily; the ninety day freeze on all prices and wages; the ten per cent tax on imported goods; and the assurance to Americans buying American-made products at home).
• Office of the Historian, US Department of State, "Foreign Relations of the United States, 1969-1976, Volume III, Document 168" (the meeting running from 3.15 p.m. on 13 August to 11.30 a.m. on 15 August; the attendee list from the President's Daily Diary and the five further names in the camp guest book; the four measures including the ten per cent cut in foreign aid; and Kissinger's account of neither the Secretary of State nor the national security adviser being consulted).
• Douglas A. Irwin, National Bureau of Economic Research, "The Nixon Shock After Forty Years: The Import Surcharge Revisited" (foreign dollar holdings of nearly 50 billion dollars against US gold reserves of about 10 billion by the late 1960s; the Friday morning British request for partial cover against devaluation and how it was garbled into a demand to exchange 3 billion dollars for gold; the Volcker quotation and his qualification; and the surcharge running from 16 August to 20 December 1971).
• Federal Reserve History, "Nixon Ends Convertibility of U.S. Dollars to Gold and Announces Wage/Price Controls" (the Camp David weekend of 13 to 15 August 1971 and the fifteen advisers).
• Federal Reserve History, "The Smithsonian Agreement" (the December 1971 move to 38 dollars an ounce and the devaluation of about 8.5 per cent; the further devaluation to 42 dollars on 12 February 1973; and nearly all major currencies floating within a month of it).
• The American Presidency Project, "Remarks Announcing a Monetary Agreement Following a Meeting of the Group of Ten" (the date of 18 December 1971 and Nixon describing it as the most significant monetary agreement in the history of the world).
• Richard Nixon Presidential Library and Museum, "August 15, 1971" (the Haldeman diary entry recording that the President decided not to release the text of the address until after it was delivered).
• US Department of the Treasury, Bureau of the Fiscal Service, "Status Report of U.S. Government Gold Reserve" (261,498,926 fine troy ounces held at 31 July 2026, of which 147,341,858 at Fort Knox, all carried at 42.2222 dollars a fine ounce).