IN THREE AND A HALF DECADES, the U.S. dollar has gone from being anchored by gold to being underwritten by hedge funds.
Think about that for a moment. Until Aug. 15, 1971, America said its currency was worth something — 1/35 of an ounce of gold, to be precise. Today, the policy of the United States government is that the dollar is should be valued according to market fundamentals. Which is to say, whatever.
There was little sense of historical irony Tuesday as the Treasury Department released its monthly report covering international capital flows on the 35th anniversary of former President Richard Nixon’s announcement that the last, vestigial link between the dollar and gold would be severed.
Prior to that, international monetary authorities, such as foreign central banks, could redeem their holdings for dollars or gold at $35 per ounce. When overseas actually exercised that right, the embarrassing drain on U.S. Treasury’s gold reserves persuaded Nixon to abrogate that promise.
