Why have central banks been in a chaotic situation since the end of the Bretton Woods Agreement in 1971 and how can they be protected? A look back at this historic decision by President Nixon, which continues to have important repercussions today.

The end of the Bretton Woods Agreement

Nixon's decision to end gold-dollar convertibility as defined at Bretton Woods in 1945 was motivated by the depreciation of the dollar and the fear of losing a large part of the US gold reserves. The end of the Bretton Woods Agreement in August 1971 raised US inflation and allowed the dollar to appreciate against foreign currencies; but this new system, now subject to the foreign exchange market, further increased the US trade deficit.

In order to counter this situation, the Reagan administration had the "Plaza Accords" signed in 1985 in New York, in which the central banks of the G5 countries (USA, Japan, France, UK and FRG) agreed to intervene in the foreign exchange market to depreciate the value of the USD. As a result of this agreement, the USD returned to its 1979 low, but was subject to sharp fluctuations.

Long-term effects

The consequences of the 'floating dollar' included the oil shock of 1974, the stock market crash of October 1987 and, in 2008, the subprime crisis that swept the world. To counter the negative effects, the FED and the major central banks adopted the policy of quantitative easing (QE), which consists of massive purchases of government debt to promote growth. As a result, between 2008 and 2020, the balance sheets of the central banks of rich countries have been multiplied by 6, aggravated by the current health crisis with the famous "whatever it takes" to save the economy.

In reality, since 2008, central banks have only sought to buy time, instead of finding the right combination to support the economy and eliminate financial risks. They are running towards over-indebtedness which leads to default and, inevitably, to the collapse of the international monetary system.

How can we protect ourselves against the default and collapse of the international monetary system?

The price of gold has benefited from this situation, rising from $35 per ounce in 1971 to $1000 in 2008. Since 2013, the price has been rising and even reached an all-time high in August 2020 when the ounce exceeded $2000 for the first time.

Physical gold is known for its safe-haven function and protects your wealth against the risks of hyperinflation, but it also remains an unshakeable bulwark against the failures of the international monetary system and its very likely future collapse.