March 28 (Bloomberg) -- Both the international monetary
system and American fiscal policy began to change in the 1960s.
The system developed at the United Nations Monetary and
Financial Conference, held in Bretton Woods, New Hampshire, in
July 1944, fixed exchange rates to a dollar backed by gold. It
worked successfully for years. But it couldn’t last forever.
By 1960, foreign dollar holdings exceeded U.S. gold
reserves. The country was like a 19th-century bank that had
issued more notes than it had gold coins in the vault. In that
year’s presidential election, both Vice President Richard M.
Nixon and Senator John F. Kennedy took pains to emphasize the
importance of maintaining gold reserves, which were seen as a
crucial element of national strength. As President Kennedy later
said: “Britain has nuclear weapons, but the pound is weak, so
everyone pushes it around. Why are people so nice to Spain
today? Not because Spain has nuclear weapons but because of all
those lovely gold reserves.”