Despite Nixon’s decision, which inaugurated a new non-system and created decades of turbulence in currency markets, the dollar never lost its position atop the international monetary system.
While the fixed-currency regime that had been launched at the 1944 Bretton Woods Conference broke down, private financial markets’ power to generate money – US dollars – made the greenback even more central. Financial institutions, corporations, and governments around the world still depended on dollar funding.
The world is quickly moving to money based on information rather than on the credibility of a particular government.
To some optimists in Washington, DC, the persistence of America’s centrality to global economic governance may seem inevitable: even a resurgence of US inflation would mean, at worst, dollar depreciation and a moderate global rebalancing (as occurred in the late 1970s, during Jimmy Carter’s presidency). The US would still provide two…