“The Most Significant Monetary Achievement in the History of the World”
President Nixon thundered these words on December 18, 1971, in a surprise weekend national address announcing the Smithsonian Agreement.
This agreement coordinated the simultaneous anchoring of each G-10 currency to U.S.-Government-Paper-Money (USGPM, or the Fiat Standard) via fixed exchange rates.
This address followed another surprise weekend address earlier that year – the “Nixon shock” of August 15th, which took the U.S. off the Gold Standard, replacing it with the Fiat Standard.
Prior to the Nixon shock and the Smithsonian Agreement, and as motivation for them, Nobel Prize winners and politicians were convinced that gold gave no value to U.S. dollars.
Rather U.S. dollars gave value to gold.
Thus, the U.S. could safely go off the Gold Standard and, correspondingly, the G-10 could safely peg their currencies to USGPM.
“Every expert knows that the popular conception that money has more value if it is exchangeable into gold exactly reverses the true relation. Were it not that gold has some monetary uses, its value would be much less than it is today ($35/oz).” – Paul Samuelson, Nobel Prize winner
“When the U.S. government stops wasting our resources by trying to maintain the price of gold, its price will sink to $6/oz rather than the current $35/oz.” – Congressman Henry Reuss
In a little over a year, this “most significant monetary achievement” smashed apart on the rocks of economic reality. Instead of gold crashing to $6/oz, by early 1973 it was USGPM that crashed to $125/oz, a level unthinkable to Samuelson’s “every expert” and to U.S. Congressmen.
As USGPM crashed, the G-10 began to see the “P” in USGPM for what it was and, one by one, quietly abandoned the Agreement. Far from a temporal fluke, in the ensuing 50 years, USGPM has depreciated versus gold ~8%/year.
P is P.
-- an excerpt from the Stone Ridge 2020 Shareholder Letter, its 2-minute version can be found here https://www.2minutebitcoin.org/blog/stone-ridge-2020-shareholder-letter