The years during and immediately following the second world war were pivotal in shaping the United States as we know it today. Industrial production in the US almost quadrupled, women entered the workforce in great numbers and American citizens made great sacrifices in terms of lifestyle and consumption. So much so that by the end of the war the US had achieved a position of what can best be described as economic dominance. "We have about 50% of the world's wealth, but only 6.3% of its population."

The world badly needed post-war currency stability. And this was to come following a 1944 conference, which had 3 main outcomes:

1. The World Bank was established
2. A 'Gold Standard' emerged, and was set at $35 an ounce
3. The American dollar was chosen as the backbone of international exchange.

This became known as the "Bretton Woods Gold Exchange system" - a set of economic rules that were to last for some 30 years.

The United States emerged from the war as the sole superpower, with a strong industrial base the largest gold reserves of any nation. The value of the dollar was tied to a hard and safe commodity: gold, and the outcome was a long period of economic security that the world craved.

This prosperous phase of the US dollar began to come to an end however in the early 1970s. Europe and Japan had strengthened and became strong exporters in their own right, oil supplies in the lower 48 US states peaked and began to dwindle and the expenses of the Vietnam war began to escalate.

The nation's expenses became greater than its income and many became concerned at the huge debts being created by the war in Vietnam and Southeast Asia, and about the value of the dollar itself.

Many countries took the view that it would only be a matter of time before the US dollar was devalued against the gold standard, and so it was better to get their gold out at a high price. Withdrawals of gold from the US Federal Reserve became extensive, and by 1971 the drain had become almost critical. When the British ambassador turned up to redeem $3 billion of paper money for 2600 tons of gold the Nixon administration abandoned the gold-dollar link entirely. Rather than risk damaging US credit he simply threw away the rule-book.

The value of the dollar now floated against other currencies where trade and true market forces determined its value. Trade deficits and debts associated with the Vietnam war continued to escalate and the dollar was ultimately devalued in the early 70s.

It was about this time that OPEC (the Organization of the Petroleum Exporting Countries of the world) began discussions to price their oil in a wide number of currencies. The French franc, German mark, British pound, Canadian dollar, Japanese yen, and of course the US dollar...

Into the Black... or Not

The Nixon administration assured its allies that it would work with OPEC to secure trading of oil in a 'basket' of currencies, and then began a round of secret, unilateral discussions with the Saudis...