And it increased the price of gold to $35 from $20.67; money, at that time, could be printed based on how much gold a country had, so with this change US could print more money.
E.g. let us say US had 100 ounces, so it could print only $2067??US could actually print 250% of the gold but for the ease of understanding we have taken 100%; so basically it could earlier print $20.67 X 250 (and not $20.67 X 100). ($20.67 X 100) earlier but as it increased the price of gold to $35; it could print $35 X 100 = $3500??US could actually print 250% of the gold but for the ease of understanding we have taken 100%; so basically it could earlier print $20.67 X 250 (and not $20.67 X 100).
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This increase in price of gold incentivised gold miners globally to expand production and foreigners to export their gold to the United States.
But this also meant that now $1 was worth much less?Imagine you having 2 ounces of gold and the government takes it and pays you $41.34 ($20.67 X 2); you are ok as you can buy it back when the prohibition ends, but then 1 ounce of gold becomes equal to $35, so with your $41.34 you can buy only one ounce..
In 1939, WWII started and everyone thought it had happened because of economic problems of WWI that couldn’t be resolved.
So, in 1944 (after the war was over), 44 countries met to find a solution to economic problems.
All of them wanted economic stability and agreed it could be achieved by pegging their currencies to something.
US at that time had 75% of world’s gold reserves (because of point 2, 3 & 5 as explained above).
So the other countries, even if they wanted to, didn’t have enough gold to back their money printing.
They decided, therefore, that they will peg their currencies to US dollar, which was pegged to gold.
But in early 1970s, US was in Vietnam War and under pressure for more money, so it increased the price of gold from $35, first to $38 and then to $42.
Some of the 44 countries grew concerned about the US dollar losing* value and started exchanging their US dollars with gold that US had.
So, in 1973 US unpegged US$ from gold so that it didn’t have to pay gold for US $.
The countries, in turn, unpegged their currencies from US$ and got into free-floating exchange rate where the currency value is determined by market forces of demand and supply.
