How the U.S. Became Banker to the Post-War World (Part 3)

March 28 (Bloomberg) -- Both the international monetarysystem and American fiscal policy began to change in the 1960s.The system developed at the United Nations Monetary andFinancial Conference, held in Bretton Woods, New Hampshire, inJuly 1944, fixed exchange rates to a dollar backed by gold. Itworked successfully for years. But it couldn’t last forever.

By 1960, foreign dollar holdings exceeded U.S. goldreserves. The country was like a 19th-century bank that hadissued more notes than it had gold coins in the vault. In thatyear’s presidential election, both Vice President Richard M.Nixon and Senator John F. Kennedy took pains to emphasize theimportance of maintaining gold reserves, which were seen as acrucial element of national strength. As President Kennedy latersaid: “Britain has nuclear weapons, but the pound is weak, soeveryone pushes it around. Why are people so nice to Spaintoday? Not because Spain has nuclear weapons but because of allthose lovely gold reserves.”